Hospitals' median calendar year-to-date operating margin index hit 2.3% in December, up from 2% in November and from 1.5% in October, according to Kaufman Hall's latest "National Hospital Flash Report," which is based on data from more than 1,300 hospitals.
Year-end accounting adjustments contributed to a slight bump in performance, but the good news for hospitals and health systems in 2023 was that many recorded general improvement across various operational and financial measures. However, it is unclear whether this trend will continue in 2024.
Hospitals' average length of stay declined year over year as they worked to establish and maintain clear pathways for patient discharge, but average LOS may ultimately rise as lower-acuity patients are increasingly treated outside of inpatient environments, according to Kaufman Hall.
In line with this migration of patient populations, hospital outpatient revenue in 2023 increased by more than 40% compared to 2020.
"These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment," Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a Jan. 30 news release. "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."
On the provider side, revenue is up, reflecting a spike in productivity, but expenses are growing at a faster rate, according to the report. In 2023, the median investment/subsidy per provider rose 7% over 2021 to $225,685. The increase is partly attributed to provider compensation, which increased 9% compared to 2021.
Advanced practice providers now comprise 38.1% of the total provider workforce, and data illustrates that hospitals and health systems that effectively recruit and deploy APPs continue to outperform those that do not.
"All signs are pointing to the need for hospitals to reconsider whether subsidizing physicians is a sustainable financial future," Matthew Bates, managing director and physician enterprise service line lead at Kaufman Hall, said. "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."