Hospitals Boost Operating Margins In July: Report

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Dive Brief:

• U.S. hospitals reported strong operating margins on growing patient volumes in July, according to new data from analytic solutions firm Strata.
• Hospitals’ median year-to-date operating margin climbed from 4.9% in June to 6.5% in July amid increasing demand for both inpatient and outpatient services, according to the report.
• Still, expense increases were “sizable” in July, Strata said. Non-labor expenses, including for drugs and supplies, grew at a quicker clip than labor costs year over year.

Dive Insight:

Strata analyzed financial data from more than 1,600 hospitals and 135,000 providers, and found revenues outpaced expenses for most hospitals in July. Strong demand for services helped facilities’ bottom lines, according to the report.

Outpatient visits rose 12.2% year over year, growing revenue from outpatient services 15.9% during that time, the report found. Similarly, inpatient admissions rose 8.2%, growing inpatient revenue by 9.1%.

However, demand for services was not spread evenly among specialties.

Breast health saw the largest dip in demand year over year, while patient volumes increased most in infectious disease and burns and wounds care.

Demand for some common procedures also declined, including for primary knee replacement surgeries, which decreased 19.3% year over year.

Expenses also rose in July. Hospitals reported double-digit growth in non-labor expenses year over year, including a 17.3% increase in drug costs.

Experts have warned hospitals to keep an eye on rising drug costs, especially GLP-1s — expensive medications developed to treat diabetes that are increasingly being prescribed for weight loss.

Still, Strata found increases in admissions and outpatient visits largely offset rising expenses for most hospitals in July. Total expense per adjusted discharge was down 0.6% year over year.

Health systems have broadly recognized that being equipped to serve higher volumes can help them absorb increased expenses.

Earlier this year, major for-profit health systems Community Health Systems, Tenet Healthcare and HCA Healthcare, all said adding bed capacity and decreasing length of stay were strategic priorities as they aim to push patient revenue higher.

HCA, for example, bumped up its bed capacity by 2% during the first quarter and increased its geographic footprint by 5%, Similarly, CHS executives touted successful initiatives to cut length of stay.

Meanwhile, major nonprofit Providence has also invested in improving patient flow as it attempts to rebound from several years of operational and financial strain. Some of those capacity management efforts are paying off, the Washington-based system reported earlier this month.