Hospital Financial Outlook Stable but Challenges Persist

Provider productivity rises for medical groups amidst ongoing financial pressures

CHICAGO – July 31ST, 2023 – Despite an overall trend of continued margin improvement, most hospitals underperformed in June as high expenses and economic pressures persist, according to the latest data from Kaufman Hall.

The median calendar year-to-date operating margin index for hospitals was 1.4% in June, with fiscal year-end accounting adjustments contributing to a slight bump in performance, according to findings in the latest National Hospital Flash Report. As margins continue to stabilize on the surface, the gap between high-performing hospitals and those struggling in this new financial environment is widening.

Kaufman Hall’s newest Physician Flash Report, with data through the second quarter of 2023, found climbing physician and provider productivity for medical groups as patients increasingly seek care in ambulatory settings.

Labor Expenses Strain Financial Performance

Provider productivity for medical groups continues to increase, with net patient revenue per provider FTE up 10% from a year ago. However, this productivity was not enough to offset rising expenses as the median investment/subsidy per provider still rose 5% year-over-year to $224,243. The total direct expense per provider full-time equivalent (FTE) reached $611,519, a 4% increase compared to Q2 2022.

“As labor continues to be the largest share of expenses, health systems need to think strategically about provider employment models,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “Organizations that want to see performance improvement must figure out how best to effectively integrate advanced practice providers into the care team model.”

Hospitals Charting New Path Forward

The challenges facing hospitals remain but have stabilized, allowing organizations the chance to consider the measures needed to return to profitability.

The proportion of FTEs per adjusted occupied beds decreased 8% from May, which may indicate higher levels of workforce reductions and staff turnover as hospitals begin taking the steps needed to survive, according to Kaufman Hall experts.

“This ‘new normal’ is an incredibly challenging environment for hospitals,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall. “It’s time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized.”

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.

About Kaufman Hall 

Kaufman Hall provides management consulting solutions to help society’s foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; performance improvement; treasury and capital markets management; mergers, acquisitions, partnerships, and joint ventures; and real estate.

Kaufman Hall companies include Claro Healthcare and Gist Healthcare.