Hospitals and healthcare systems in the U.S. continue to experience significant expense challenges even as there have been signs of improvement in recent months, according to a new report from Strata Decision Technology.
The expense pressures and volatile patient volumes contrasted with stabilizing operating margins and some increased revenue metrics to make the overall market unpredictable, according to the report.
Total labor expense in June 2024 increased 5.2%, and total non-labor expense in the period was up 3.3% from June 2023. That is despite figures in May 2024 showing some of the year’s first decreases in supply and drugs expense and some other signs of improvement in June as overall expense declined 2.8% from May.
Such a trend in overall rising expenses remain a concern for physician practices across the country as total direct expense per physician rose 16.3% in the second quarter compared with the same period in 2023, according to the report. There were corresponding ongoing increases in investment needed to support such physician practices with a jump of 12.3% as the median investment per physician in the period over second quarter 2023.
“While overall financial performance for these critical healthcare organizations has strengthened compared to recent years, they continue to experience significant market volatility,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology.
Signs of improvement even as volatility remains
Such overall financial improvement was seen in operating margins stabilizing with the median health system recording a 2.3% figure in June, the second straight month at that number. That compares with operating margins of less than 1% in the second half of 2023.
Individual hospitals also showed more stability in the first half of the year, ending the second quarter with a median year-to-date operating margin of 4.9%, down slightly from a 5% figure in May.
Operating margins were generally flat in June compared with the same month in 2023 even as there were regional differences. In the Midwest and Great Plains, such margins over that period were down 3.8 and 2.7 percentage points, respectively. In the South, such margins were up 2.4 percentage points.
Gross hospital revenues rose 3.6% compared with the same period in 2023 but were down in May 2024. Both inpatient and outpatient revenue also increased year on year.
Adding to the volatility were patient volumes, which were down in June across most measures. Outpatient visits and observation visits, for example, were down 4.2% year on year, representing a reversal from increases seen in May.
Volume declines were even stronger month to month with outpatient volumes down 10.2% in May. Emergency visits were down 9.5%. The only metric to see an increase was inpatient admissions at 1.4% up year on year.
Year-on-year patient volume changes were mixed with increases across seven of 15 common procedure types and a decrease for eight such procedures. Inpatient primary knee replacement surgeries reported the largest decrease at 13.3%, while outpatient positron emission tomography scans showed the largest increase for the second straight year, up 10.3%.
The figures used in the report represent data from over 600 hospitals in more than 120 healthcare systems across the country as well as from 135,000 physicians from more than 10,000 practices.