Positive financial finish for hospitals and health systems in 2023, though challenges loom

Challenges loom for hospitals: ©Spiroviewinc - stock.adobe.com

In the wake of the unprecedented challenges posed by the COVID-19 pandemic, hospitals and health systems experienced a marked improvement in operational and financial performance throughout 2023, according to the latest insights provided by Kaufman Hall. The data, extracted from the National Hospital and Physician Flash Reports, indicates a positive trajectory for the health care industry after enduring the most tumultuous year in recent memory.

As of December 2023, the median calendar year-to-date operating margin index for hospitals stood at 2.3%, marking a welcome improvement. Contributing to this positive shift were year-end accounting adjustments, which played a pivotal role in boosting overall performance, as revealed in the report. Concurrently, the latest Physician Flash Report highlighted an increase in provider productivity. However, it also underscored a persistent challenge: while productivity is on the rise, expenses continue to outpace revenue growth.

One notable trend highlighted in the reports is the significant financial recovery, bringing hospital finances closer to pre-pandemic levels. The efforts to streamline patient discharge processes have resulted in a decline in the average length of stay on a year-over-year basis. Nevertheless, uncertainties persist, with concerns that this trend might reverse as lower-acuity patients increasingly receive treatment outside traditional hospital settings. Notably, outpatient revenue has experienced remarkable growth, surging by over 40% compared to 2020.

Erik Swanson, senior vice president of Data and Analytics at Kaufman Hall, emphasized the importance of hospitals adapting to the evolving healthcare landscape. Swanson stated: "These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment. While finances are approaching historic levels, today’s care and business models look very different. Organizations have had to adjust how and where they’re delivering services to better meet patient preferences."

Despite these positive indicators, challenges loom on the horizon, according to Kaufman Hall. While revenue has seen an uptick due to increased provider productivity, expenses are escalating at a faster pace. The median investment/subsidy per provider surged to $225,685, marking a 7% increase since 2021. Contributing to this rise is a 9% increase in provider compensation compared to 2021. Advanced practice providers (APPs) now constitute 38.1% of the total provider workforce, with data indicating that hospitals and health systems effectively recruiting and deploying APPs continue to outperform their counterparts.

Matthew Bates, managing director and Physician Enterprise Service Line Lead with Kaufman Hall, cautioned against the sustainability of current provider subsidies. Bates said: "All signs are pointing to the need for hospitals to reconsider whether subsidizing physicians is a sustainable financial future. Sticking to the status quo is not a feasible option for organizations that want to be successful in the long term—they need to examine and rethink how the physician employment model is linked to their overall financial strategy and goals."

The National Hospital Flash Report draws upon data from over 1,300 hospitals sourced from Syntellis Performance Solutions, while the Physician Flash Report relies on data from more than 200,000 providers, also provided by Syntellis.