Kaufman Hall: Signs of hospital margin stability emerging

Hospital operating margins continued to decline in 2022 as labor expenses climbed, but financial pressures may be easing, according to a new report.

The median hospital operating margin dropped 39% from 2021 to 2022 as labor costs increased 9%, a monthly Kaufman Hall analysis of data from more than 900 hospitals found. However, expense growth slowed and inpatient volumes improved in December, which could signal a more stable financial outlook for early 2023, analysts said in the report. Here are five takeaways from the data.

  • The median hospital operating margin ticked up 0.2% from November to December, reversing an 11-month streak of margin compression.
  • Labor expenses per adjusted discharge increased 4% from 2021 to 2022. But that metric declined 1% from November to December, suggesting that hospitals are using fewer contract staffing services and that they are operating more efficiently. Full-time equivalent employees per occupied bed rose 4% November to December.
  • Hospitals’ bad debt and charity care as a percentage of gross revenue dropped 8% from 2021 to 2022.
  • Adjusted discharges increased 3% from 2021 to 2022, while average length of stay remained flat.
  • Outpatient revenue jumped 8% from 2021 to 2022 and 20% from 2019 to 2022.

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