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Hospital / health system finances saw promise in 2023, with growth in outpatient revenue, finds Kaufman Hall

Following the worst year since the beginning of the COVID-19 pandemic, 2023 presented a more promising trend for hospitals and health systems with general improvement across operational and financial measures, according to the latest data from consulting firm Kaufman Hall.

The median calendar year-to-date operating margin index for hospitals was 2.3% in December, with year-end accounting adjustments contributing to a slight bump in performance, according to findings in the January National Hospital Flash Report. The January Physician Flash Report found that provider productivity has increased, but expenses continue to outpace revenue growth.

Hospital finances approach pre-pandemic levels

Hospitals and health systems saw significant financial improvement in 2023, but whether this will hold moving forward remains to be seen. The average length of stay has declined on a year-over-year basis as hospitals have worked to establish and maintain clear pathways for patient discharge. However, average length of stay may ultimately rise as lower-acuity patients are increasingly treated outside of the hospital setting. Outpatient revenue has grown significantly — increasing by more than 40% compared to 2020.

These improved margins indicate that hospitals and health systems are taking the necessary steps to adapt to this new environment. 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.

Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall

Provider subsidies not sustainable

Revenue is up, reflecting increased productivity by providers, but expenses are increasing at a faster rate. The median investment/subsidy per provider rose to $225,685 — an increase of 7% since 2021. This is due in part to provider compensation, which has risen 9% compared to 2021. Meanwhile, advanced practice providers (APPs) now make up 38.1% of the total provider workforce, as data show that hospitals and health systems that effectively recruit and deploy APPs continue to outperform those that do not.

All signs are pointing to the need for hospitals to reconsider whether subsidizing physicians is a sustainable financial future. Sticking to the status quo is not a feasible option for organizations that want to be successful in the long term — they need to examine and rethink how the physician employment model is linked to their overall financial strategy and goals.

Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall

The National Hospital Flash Report draws on data from more than 1,300 hospitals from Syntellis Performance Solutions. The Physician Flash Report draws on data based on more than 200,000 providers, also from Syntellis (previously Kaufman Hall Software, now part of Strata Decision Technology).