The past year was a step in the right direction for the hospital industry as outpatient revenue and below-inflation expense increases fueled a 9% year-over-year increase in 12-month operating margins.
The new numbers from advisory firm Kaufman Hall run through December and reflect operating data from 1,300 hospitals nationwide as collected by Strata.
Those hospitals logged a collective 4.9% median operating margin across the year and ended on a strong note with a 7.6% median operating margin for December alone.
Full-year adjusted discharges per calendar day rose 5% from 2023 to 2024, while average length of stay fell 1%, ED visits grew 1% and observation patient days comprised a 13% smaller portion of total patient days.
Through 2024, hospitals’ daily net operating revenue grew 8%, inpatient revenue by 8% and outpatient revenue by 9% as compared to the year prior. Net patient service revenue per adjusted discharge rose 3%, and net patient service revenue per adjusted patient day rose by 5%.
In comparison, full-year daily total expenses rose 6% year over year, with labor rising by 5%, nonlabor by 7%, supply expenses by 9%, drug expenses by 9% and purchased service expenses by 8%. Total expense per adjusted discharge increased by 2% year over year with nonlabor expenses pushing more of the growth.
Focusing in on single-month performance, daily net revenue grew 2% month over month and 6% when comparing December 2024 to December 2023. Inpatient revenues were up 4% and 5% for those same comparisons while outpatient shifted by 0% and 10%.
Conversely, hospitals’ daily total expenses were flat from November to December and rose 6% from December 2023 to December 2024.
The numbers broadly spell good news for the hospital sector, though the firm was quick to point out hospitals’ recent road bumps and other trends worth keeping an eye on, such as a 14% rise in bad debt and charity from 2023 to 2024.
“While it’s encouraging to see continued stability in hospitals’ financial well-being over the past 12 months, historically slim margins indicate hospitals are not yet in a fully sustainable position,” Erik Swanson, senior vice president and data and analytics group leader with Kaufman Hall, said in a release. “The uptick in bad debt and levels of uncompensated care provided by hospitals will be an indicator to monitor over the next several months. On the workforce front, we continue to see a competitive and tight labor market across the healthcare sector.”
Looking ahead to the new year, Swanson previously told Fierce Healthcare to keep an eye out for continued outpatient growth, supply and drug cost inflation (particularly with the looming threat of tariffs) and a divide between top and bottom performers that could fuel M&A.