Large health systems have started to report profits and stronger margins in the last 18 months after pandemic disruptions. Firms such as Kaufman Hall and Strata have also reported nonprofit hospital margins ticking up.
But that doesn't mean hospitals have an abundance of cash.
"One of the most pervasive myths I encounter is about healthcare margins," said Craig Kent, MD, CEO of UVA Health and executive vice president of health affairs at the University of Virginia in Charlottesville. "It seems people outside the healthcare industry and even our own team members believe healthcare systems are making significant margins and have plenty of cash. In reality, our health system margins are thin, if they exist at all."
People hear healthcare is a $4 trillion business and accounts for 18% of the gross domestic product, and assume the money primarily goes to the hospitals as the service provider. But that's not the case. Much of the money in healthcare has gone to large pharmaceutical companies, insurers and other nonproviders.
"There is definitely money in healthcare, but it is a misconception that it is flowing into the coffers of hospitals, clinics or medical schools," said Dr. Kent.
Lyndon Edwards, COO of Loma Linda (Calif.) University Medical Center, has seen a similar trend. He said the biggest misconception of the year is that health systems have achieved financial stability and are past the financial toll of the pandemic.
"Healthcare systems continue to grapple with rising costs for supplies, pharmaceuticals and labor, while reimbursement rates have not increase at the same trajectory," said Mr. Edwards. "This financial squeeze hampers our ability to invest in innovative technologies and patient care initiatives."
Safety-net hospitals in particular are feeling the financial pinch, with many at negative margins for the last several months. And there's little relief in sight.
"There is a huge misperception by consumers that healthcare profitability is evenly distributed within the ecosystem of healthcare," said Tracea Saraliev, board member of the Dominican Hospital Santa Cruz (Calif.) and PIH Health. "This distortion is even more severe among health system providers where there is a wide variation in margin based on payer mix, contracted insurance rates, geographic markets, service lines and portfolio composition within the continuum of care. Some health systems can't stay afloat and are being forced to sell while others remain highly profitable and are on a buying spree to grow and diversify."
Kaufman Hall has reported hospital margins inching up overall this year, but was also quick to note the growing gap between the highest and lowest performing hospitals. The top performing hospitals have resources to spend on more full time staff versus contract labor and a robust technology strategy.
Healthcare providers also anticipate continued stress as demand for care increases. Mr. Edwards said healthcare providers are still seeing higher acuity cases due to COVID-19 and increased mental health issues.
"Ongoing support and innovative financial models are essential to ensure healthcare systems can provide the vitality that our communities need," said Mr. Edwards.