Hospitals Seeing Financial Relief as Operating Margins Stabilize: Proceed with Caution

Hospitals are finally starting to see some financial relief as operating margins stabilize, according to a recent report from Kaufman Hall. The data shows that revenue increases are offsetting rising expenses, leading to a median year-to-date operating margin index increase from 0.9 percent in July to 1.1 percent in August.

While these margins are still below historical levels, the report highlights the positive trend of hospitals consistently achieving positive margins since March. Additionally, hospitals have experienced robust revenue growth, with net operating revenue increasing by 8 percent month-over-month and gross operating revenue rising by 9 percent.

Inpatient and outpatient revenue also saw significant gains, with a 4 percent increase for inpatient revenue and a 12 percent increase for outpatient revenue from July to August. Hospital CFOs are advised to focus on revenue optimization strategies, especially in the outpatient setting where care transitions have been evident.

Despite these positive trends, hospital leaders are being warned to proceed with caution. Ben Finder, director of policy research and analysis at the American Hospital Association, cautioned against a “false narrative” that hospitals are in the financial clear. He pointed to reports from Fitch, Moody’s, and S&P that show a decline in nearly every metric of hospital and health system financial health in 2022.

While the Kaufman Hall report paints a cautiously optimistic picture for hospital CFOs, Finder emphasizes the importance of looking at the big picture. CFOs need to remain vigilant in managing costs and optimizing revenue, as hospitals and health systems continue to face challenges from cascading waves of illnesses, inflationary pressures, and rising expenses for drugs, labor, supplies, and equipment.

Overall, while hospitals are seeing some financial relief, the road to full recovery is still long. CFOs must continue to adapt to the evolving healthcare landscape and prioritize financial resilience in the face of ongoing challenges.