Hospitals' operating margins fell in July as fewer patients sought care

Nationwide hospital finances hit a rough patch in July as reduced patient volumes, a bump in bad debt and charity care whittled operating margins.

That’s the latest from healthcare consulting firm Kaufman Hall, which reported a -1.6% median single-month operating margin index for the industry in July. The decline drove a slight dip in hospitals’ median year-to-date operating margin index to 1.3%.

Still, the firm was quick to note that the hospital industry’s tough month is still a “slight improvement” over the operating margins of 2022.

“It’s clear that today’s challenging financial environment is here to stay, and hospital leaders must be proactive in seeking out opportunities to refine their operations and remain competitive,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall and an author of the report, said in a release.

Hospitals’ daily net operating revenues declined 9% from June to July but remain up 7% compared to July 2022. Month-over-month declines to daily inpatient revenue (-3%) paled in comparison to those of daily outpatient revenue (-8%) and were mirrored by reductions in daily adjusted discharges (-7%) and daily operating room minutes (-3%).

Some of the pullback among outpatient volumes, which have generally grown faster than inpatient recovery in recent months, “may be attributed to less patients seeking elective procedures in summer,” the firm wrote in the report.

Kaufman Hall also flagged a 7% month-over-month increase in bad debt and charity as a percentage of hospitals’ gross revenue, which the group said could reflect the 30-plus states disenrolling Medicaid members amid eligibility redetermination.

The reduced utilization did bring a -4% dip in total daily expenses from June to July, which was still 4% higher than July 2022. Daily labor expense decreased by just 1% month over month while non-labor expenses fell 7%.

“Expenses will likely continue to fluctuate due to inflation,” the firm wrote.

With the challenges of higher expenses and Medicaid disenrollment in mind, Swanson highlighted the need for hospitals to focus on establishing relationships and pathways that will help get patients into more appropriate post-acute care settings.

“Hospitals that prioritize care transitions are performing better than institutions who do not,” Swanson said. “Identifying steps that can ensure a smooth transition, such as obtaining prompt pre-authorizations and planning discharge early, will help organizations reduce expenses and improve patients’ experience.”

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.