Hospital operations broadly maintained their strong momentum through February thanks to high revenues and quicker discharges, though the month’s metrics aren’t yet showing the full impact of Change Healthcare’s services outage.
Kaufman Hall's latest sectorwide report outlined a single-month operating margin index of 4% for February, a slight dip from March’s 4.7% but still above much of 2023’s tallies. Calendar year-to-date operating margin index sat at 4.9% in February, as opposed to the 1.8% that closed out 2023, according to the healthcare management consulting firm's report.
Still, the firm said it's keeping its eyes on the numbers to come and advised hospital leaders to take immediate action on steps to preserve liquidity and monitor any changes in their revenue streams.
“Robust hospital margins in February demonstrate continued recovery from the pandemic years, but challenges are on the horizon,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a release. “The aftermath of the Change Healthcare cyberattack and continued competition from industry disrupters may test financial performance in coming months, as disrupters capture more profitable, lower-acuity and lower-capital-intense services from hospitals.”
According to the report, which includes data from more than 1,300 U.S. hospitals, month-over-month daily net operating revenue and daily gross operating revenue rose 2% and 3%, “highlighting payer mix changes.” Net patient service revenue dipped 4% from January to February per adjusted discharge but rose 1% month-over-month per adjusted patient day. Daily outpatient revenue was up 6% while daily inpatient revenue dropped by 3%.
Across volumes, daily discharges rose by 1% and adjusted discharges by 6% from January to February. Hospitals’ total expenses per calendar day rose 3% month over month due in large part to non-labor expenses and purchased services expenses.
Still, hospitals were more efficient on a per-patient basis. Month over month, the average length of stay dropped by 5% and total expense per adjusted discharge dropped by 3%.
Weighing in on March’s likely challenges, the firm advised hospitals to “prioritize immediate steps” around liquidity management, “including extending accounts payable, slowing capital spending, drawing on lines of credit, or liquidating assets such as treasuries.”
Kaufman Hall also told hospitals to consider diversifying their clearinghouses and banking partners “to diminish counterparty concentration risk” and said that hospitals should keep a close eye on their claim denial rates as backlogs are now starting to be cleared.
Data from Kaufman Hall’s monthly reports are collected by Syntellis Performance Solutions (previously Kaufman Hall Software, now part of Strata Decision Technology). Syntellis’ own monthly report reaffirmed many of the same changes from January to February but underscored longer-term trends of dwindling cash on hand and high expenses across supplies, drugs and physician practice operations.
Last month Kaufman Hall warned that these reports’ findings of steady financial recovery should be taken with a grain of salt. While the sector’s overall financial health may be in a better place, the numbers are skewed by larger systems as about 40% of individual hospitals were still losing money from operations going into 2024.