Hospital operating margins and patient numbers saw a slight decrease in March, according to a recent report by Kaufman Hall. The single-month operating margin index ended March at 3.4%, a small decrease from February’s 3.6%. However, it is important to note that March concluded with an annual to date operating margin index of 3.9%, higher than the 1.9% index at the end of 2023.
Despite the financial stability of hospitals during this year’s first quarter, the statistics in the report could point to incoming financial hardships. The clarity regarding these potential challenges, whether they mean short or long-term reductions in margins and volumes, remains elusive, as noted by Erik Swanson, Senior Vice President at Kaufman Hall.
As Swanson explained, “Nothing we have indicates that we should expect a large drop in volumes, but the next couple of months will help us understand those longer-term trends more fully.”
The report also brought to light a 5% decrease in hospitals’ outpatient revenue in March, mainly due to the competitive landscape of outpatient care. High competition is increasingly prevailing as more hospitals offer outpatient services, often competing with a rising number of traditional and non-traditional providers for patient intake.
In addition to these challenges, there is an increase in bad debt and charity, along with more days in accounts receivable. Swanson attributes some of these accounts receivable balances to the Change Healthcare cyber attack, as organizations delay collection. He also highlighted the shift away from commercial payers as a potential cause for the rise in bad debt.
In response to these declining revenue and volume trends, the report suggested that hospitals explore boosting their growth in high-performing sectors such as ambulatory surgery centers, pharmacies, and imaging services. Depending on the hospital’s situation, it might also be advisable to establish a retail presence.