The new year has seen a steady rise in hospitals’ operating performances as a jump of inpatient volumes and their associated revenues outpaced expense increases, according to Kaufman Hall.
“January was a relatively stable month for hospitals, as more people received care due in part to seasonal challenges like flu and other respiratory diseases,” Erik Swanson, managing director and group leader of data and analytics for Kaufman Hall, said in a release. “Hospitals are also experiencing more rapid revenue growth from inpatient than outpatient services. Expenses are also rising, driven primarily by drug costs, though the rate of cost growth has slowed.”
In the advisory firm’s latest monthly report, hospitals across the nation logged a monthly median operating margin of 4.4%, up from December’s 3.7% and well above the 2.1% reported across the 2024 calendar year. These numbers reflect the inclusion of health system allocations—a newly launched metric that reflects all allocations for the cost of shared services a hospital receives from its parent health system, such as salaries for hospital-based physicians or IT spending.
Excluding those also saw improvements to hospitals’ operating margins. In January, that median measure was 8%, up from December’s 7.3% and above calendar year 2024’s 5%.
Both of January’s median operating margins represent 12-month highs for the industry.
Daily discharges rose 5% from December as well as from January 2024, while daily adjusted discharges increased 2% month over month and 7% year over year.
Adjusted patient days per calendar day rose 4% month over month and 3% year over year, with observation visits representing a smaller portion of logged patient days. Emergency department visits were flat month to month but rose 4% year over year. Average length of stay grew 2% since December but fell 4% from last year’s average.
Hospitals’ net daily operating revenue rose 1% month over month and 6% year over year, while gross daily operating revenue rose 5% from December and 8% from the prior year’s January.
Daily inpatient revenue made up much of the increase with an 8% month-over-month increase and a 7% year-over-year increase, which, alongside the volumes data, outline increases in hospital and ER care. In comparison, daily outpatient revenue grew 3% from December but remains a clear growth area with a 9% rise over the year prior and a 45% jump since the beginning of 2022.
Hospitals’ expenses inched upward with the higher volumes but were held in check on a per adjusted discharge basis, according to the report. Daily total expense was up 1% from December and 5% from January 2024 but fell 1% and 3%, respectively, per adjusted discharge. When looking on a per adjusted discharge basis, all expense metrics fell from December with the exception of labor and drug expenses, both of which remained flat.
“Expenses continue to be driven primarily by the cost of drugs,” the firm wrote in the report. “However, the rate of cost growth has slowed considerably.”
Of note, hospitals found some relief on the growing burden of bad debt, which Kaufman Hall had flagged in prior reports as a concern based on 2024 growth. Daily bad debt and charity dipped 3% from December but remain 3% higher than in January 2024. Bad debt and charity as a percentage of hospitals’ gross operating revenue was 6% lower month over month and year over year.
Kaufman Hall, which is owned by healthcare data and improvement company Vizient, releases monthly reports built on operating data from 1,300 nationwide hospitals, as collected by Strata Decision Technology.
Kaufman Hall’s finding of stable operations and modest margin growth are partially reinforced by Strata’s own monthly benchmark analysis of over 1,600 participating hospitals. That report saw a 0.3% bump in month-to-month operating margin but warned of a “shaky start” to the year for health systems with median year-to-date operating margins that fell from the year-end 2.1% in December to just 1% in January.