Hospital margins gained more ground in November, Kaufman Hall reports

The hospital sector’s operating margins and their underlying performance metrics moved in a favorable direction across November, a trend that Kaufman Hall said turns the page from financial sustainability to strategic growth.

In its latest monthly report released this week, the firm outlined an increase in its year-to-date operating margin index, from 1.5% through October to 2.0% through November. Its single-month operating margin index also rose from 3.2% in October to 3.8% in November.

Still, the firm noted that the gap between high-performing and low-performing hospitals within its sample “remains quite wide,” the firm wrote. The sector’s latest improved margins also remain a step behind those of 2020 and 2021.

Across the month’s revenue, expense and volume trends, Kaufman Hall highlighted 1% month-over-month (MoM) and 2% year-over-year (YoY) rises in net patient service revenue per adjusted discharge, as well as total expense per adjusted discharge declines of 1% MoM and 2% YoY. Both are signs of hospitals’ financial recovery, the firm wrote, and reflect “the efforts organizations have taken to deliver care in the most effective settings and reduce reliance on contract labor where possible.”

Meanwhile, average length of stay declined 2% MoM and 6% YoY, suggesting that patient acuity is starting to return to “normal” levels.

“Organizations that have adopted value-based and bundled payment models will benefit further [from the acuity decrease] as they transition and provide care at the appropriate clinical setting,” the firm wrote.

Digging deeper, hospitals logged a 1% MoM increase in daily net operating revenue and daily gross operating revenue in November, Kaufman Hall found. These upticks came from the inpatient side of hospitals’ business as outpatient revenue per calendar day stayed flat from the prior month. Daily discharges and daily adjusted discharges both rose 2% MoM, per the report. Daily ED visits rose 1%, daily operating room minutes rose 2%.

With much of the sector now shifting out of survival mode, the firm wrote that many hospitals should start thinking less about cuts and more about reinvesting into new opportunities.

“As performance indicators stabilize, hospitals should take advantage of the relative stability and re-embrace strategic growth if they hope to see continued success in 2024,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement. “Growth strategies may vary from hospital to hospital, but all leaders should ensure that they are supporting goals beyond just profitability and scale, including business model transformation and diversification.”

Kaufman Hall’s monthly reports incorporate information from more than 1,300 U.S. hospitals, the data from which are collected by Syntellis Performance Solutions (previously Kaufman Hall Software, now part of Strata Decision Technology).