Finance leaders take heed: Outpatient volumes dropped 5% while physician compensation shot up 2%
Finance leaders in the healthcare industry are facing a tough road ahead as outpatient volumes dropped 5% while physician compensation shot up 2%, according to Kaufman Hall’s latest National Hospital Flash Report.
The report indicates that hospitals across the nation are experiencing thinner operating margins due to lower volumes and revenues, coupled with rising labor costs. The Kaufman Hall Calendar Year to Date Operating Margin Index was 3.9% in March, a slight decrease from 4.1% in February, highlighting the financial challenges faced by health systems.
One of the major contributors to the declining margins is the continuous rise in labor costs, with staffing accounting for 84% of expenses according to KH’s Physician Flash Report for Q1 2024. This trend is expected to persist as the clinical shortage in the healthcare industry continues to pose challenges for hospitals.
Despite being aware of the issue, hospital CFOs are finding it difficult to address the rising labor costs without impacting staffing levels or hours. Cutting labor expenses often leads to staff unrest and turnover, further complicating the situation for finance executives.
On the other hand, the report also highlights the increase in productivity and compensation for physicians, with productivity growing by 4% in Q1 2024 compared to the previous year. However, the rise in clinician labor costs is putting pressure on health systems to optimize downstream margins and prioritize outcomes related to revenue.
The decline in outpatient volumes by 5% in March is another concerning trend identified in the report, attributed to the competitive challenges of providing outpatient care. Organizations may need to reevaluate their assets and consider strategic partnerships to offset the challenges with volume in the outpatient setting.
Overall, the National Hospital Flash Report serves as a wake-up call for finance leaders in the healthcare industry to address the financial challenges posed by declining volumes, rising labor costs, and the need to optimize margins in order to ensure long-term sustainability.