Hospital financials, on average, worsened in the first quarter, despite a relatively strong start to the year, as operating margins, volume and revenue declined, according to Kaufman Hall's latest "National Hospital Flash Report."
The year to date operating margin index for hospitals was 3.9% in March, a 0.2 percentage point drop from 4.1% in February, according to the report, which is based on data from more than 1,300 hospitals. Hospital outpatient revenue decreased by 5%, reflecting the competitive challenges in the outpatient environment.
"Declines in outpatient revenue mean hospitals providing outpatient care may face difficulties ahead," Erik Swanson, senior vice president of Kaufman Hall, said in a May 2 news release. "Organizations may need to reevaluate their assets and consider strategic partnerships to offset current and future challenges with volume."
Analysts noted that hospitals should expect challenges for revenue cycles and overall collections due to increases in bad debt and charity.
On the physician side, Kaufman's latest report shows that overall labor costs continue to grow, with labor expenses accounting for 84% of total expenses in the first quarter, according to the company's latest "Physician Flash Report," based on data from more than 200,000 providers.
Revenue and expenses are projected to continue to rise, suggesting increased productivity by providers and increases in median investment/subsidies in providers by health systems, according to Kaufman Hall. First-quarter provider productivity grew by 4% year over year and the median investment/subsidy in providers increased 2% to $227,972.
"With the high cost of labor unlikely to change, health systems must think critically about how to optimize downstream margins," Matthew Bates, a managing director with Kaufman Hall, said. "Organizations could lean into strategies that enable physicians to be more productive as well as prioritizing outcomes related to lengths of stay or readmissions, which impact revenue."