Jun 28, 2023 - Health

Hospital margins rebounding post-pandemic

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Illustration: Eniola Odetunde/Axios

Hospitals' operating margins are moving back into positive territory as patients flock to outpatient clinics and labor costs start to decline, a new Kaufman Hall report finds.

Why it matters: It's another sign the industry's fortunes are improving post-pandemic, which could bolster congressional efforts to change the way Medicare pays health systems.

Driving the news: May marked the third month in a row when facilities recorded positive operating margins (the percentage of revenue kept as profit). The year-to-date operating margin index stood at 0.3%, up from 0.1% the previous two months and considerably higher than 2022, when many facilities were operating in the red.

  • Revenue from outpatient care is growing at a much faster pace than inpatient care revenue, the report shows.
  • Labor expenses, which spiked dramatically during the pandemic, are beginning to decrease as well.
  • The new report validates findings in a Cowen survey of nonprofit hospitals that found revenue growth accelerated in May.

Reality check: Margins are still well below pre-pandemic levels, but things look much more positive than they did in 2022.

  • Patients are becoming comfortable with inpatient care, with discharges, emergency department visits and operating room minutes all climbing, the Kaufman Hall report says, although modestly on a year-to-date basis.

What we're watching: The positive trend could weigh on insurers, Modern Healthcare reported, stoking investor fears some health plans may not be prepared for a surge in utilization.

  • Big insurers like UnitedHealth will announce second-quarter earnings in the coming weeks, providing more insight into health care utilization so far this year.
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