Hospital operating margins challenged even as outpatient demand increases

Hospital operating margins are still challenging: ©SpiroviewInc - stock.adobe.com

In a report by Syntellis, detailing the financial performance of U.S. hospitals and physician groups, it has been revealed that hospital operating margins are facing significant challenges despite the growth in patient volumes.

The report, drawing data from over 135,000 physicians and 1,300 hospitals, shows the financial complexities that health care institutions are navigating. The median hospital operating margin remained flat in October, reflecting a continuation of the unsteady performance observed over the past eight months. After rising out of the red eight months ago, hospitals are grappling with a persistently tight financial environment. Demand for outpatient care continues to surge, with hospitals experiencing double-digit growth in outpatient revenue compared to October 2022. The growth in outpatient services suggests a shifting trend in patient preferences towards more accessible and less resource-intensive health care options.

“Hospitals continue to see gains in key areas, including six straight months of growth in inpatient and outpatient revenues,” Steve Wasson, chief data and intelligence officer with Strata Decision Technology, said in a statement. “At the same time, persistent increases in total expenses continue to pressure hospital operating margins, making it difficult for these vital organizations to gain a solid foothold as they work to rebuild financial health.” -

Hospital supply and drug expenses witnessed significant increases, driven by factors such as inflation and higher patient volumes. Despite the growth in patient volumes and revenues, high costs continue to exert pressure on the overall financial performance of hospitals and physician practices. Patient demand increased for both hospitals and physician practices, resulting in higher physician productivity and increased hospital patient volumes. The surge in patient demand is seen as a positive indicator for health care providers, contributing to higher productivity levels.

While operating margins have remained unsteady, there is an overall improvement compared to the negative performance observed in October 2022. Year-over-year increases in the median change in operating margin ranged from 1.7 percentage points in the Northeast/Mid-Atlantic to 5.9 percentage points in the South. Total hospital expenses continued to climb, with supply and drug expenses registering substantial increases. Despite volume-adjusted expense metrics decreasing in some areas, total non-labor expense increased by 7.3% year-over-year. Patient volumes across various metrics increased in October, indicating a rebound from weaker performance in the previous month. Outpatient revenue experienced the most significant increase at 12.3% year-over-year and 6.6% month-over-month.

Physician practices witnessed rising expenses, necessitating higher levels of investment to subsidize insufficient physician practice revenues. Median investment per physician FTE rose to $281,632 for October annualized, reflecting a 6.5% increase from 2022. Physician revenues continued to rise, with net revenue per physician FTE increasing by 10.8% versus 2022. Physician productivity, measured by work relative value units (wRVUs) per FTE, reached 6,181.38, indicating a 5.7% increase from 2022.