Hospitals end 2023 with year-high margins, shortened average stays

Hospitals and health systems closed out the year on a high note with margins up more than 15% from 2022, according to Kaufman Hall.

The firm’s latest sector-wide monthly report pointed to an increase in year-to-date operating margin index, from 1.9% through November to 2.3% at the end of the year. On a single-month basis, the operating margin index rose from 3.2% to 4.6% at the same cutoffs.

“These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a release. “While finances are approaching historic levels, today’s care and business models look very different. Organizations have had to adjust how and where they’re delivering services to better meet patient preferences.”

The stronger margins are accompanied by other signs that hospitals are operating more efficiently. One standout highlighted in the report is average length of stay, which has dropped by 4% both when comparing December 2023 to December 2022, and when looking at the calendar year as a whole, according to the report.

“This continued stabilization reflects the ongoing effort by hospitals and health systems to have clear pathways for discharge,” the healthcare management consulting firm wrote. “Despite current signs of improvement, acuity and average length of stay will likely rise in the long term as more lower-acuity care is shifted outside the hospital.”

That transition to the outpatient setting is already bearing out, per the report. Though outpatient revenue per calendar day dipped 4% from November to December, year-to-date outpatient revenue per calendar day has risen 10% from 2022 to 2023, and by 41% from 2020 to 2023.

Those year-to-date increases have so far been accompanied by 4% (2022 to 2023) and 16% (2020 to 2023) rises in daily inpatient revenue.

Still, Kaufman Hall is placing its bet on continued significant growth due to “the shift towards outpatient care settings due to reimbursement changes, patient preference, increased ability for care to be delivered in these settings and further digitization.”

Hospitals’ net and gross operating revenue per day dropped 2% month over month, but are respectively up 6% and 8% year to date. Net patient service revenue per adjusted discharge was down 1% month over month but up 1% year to date. Net patient service revenue per adjusted patient day also fell 1% from November, but year to date is up 5% compared to 2022.

Across volumes, daily discharges rose 2% month over month and are up 3% year to date whereas adjusted daily discharges dipped 1% from November and are up 7% year to date. ED visits per calendar day rose 3% month over month and 2% year over year, while operating room minutes per calendar day fell 7% month over month but remained up 3% year to date.

Hospitals also managed to cut their expenses across the board in December, per the report. From November to December, per-day total expense dropped 2%, labor expense fell 1% and non-labor expense dipped by 3%, though total labor expense per adjusted discharge remained flat. Conversely, all of the daily expense metrics remain elevated from 2022 while year-to-date total expense per adjusted discharge is 4% lower year over year.

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).