After months of grappling with challenging financial returns, hospitals and health systems are finally beginning to see glimmers of optimism. According to the latest flash report, there’s been a notable improvement in various aspects of financial performance in the healthcare sector. While it is crucial to note that the road to recovery is ongoing, these positive indicators offer a much-needed respite for an industry that faced its worst financial year in 2022 during the COVID-19 pandemic.
The report reveals that hospitals and health systems are witnessing an increase in patient volumes, particularly in outpatient services. This shift is a significant factor contributing to the improved financial outlook, marking a departure from the post-pandemic period characterized by pent-up demand for inpatient services.
Basically, the findings of the report, emphasize the evolving dynamics, stating, “Hospitals can expect a ‘new normal’ of slowly increasing margins that may never return to pre-pandemic levels without re-evaluating how and where care is being delivered.
While operating margins still linger below pre-pandemic levels, the modest improvement is a hopeful sign. In May, the median year-to-date operating margin index for hospitals rose to 0.3%, a slight increase from 0.1% in April and March. Although challenges persist, this positive trajectory suggests a degree of stability that was sorely missed during the tumultuous events of the past year.
Attitudinal Shift in Patient Mindset
One particularly encouraging aspect highlighted in the report is the growing comfort among patients with inpatient care. “Patients are showing us that they are becoming more comfortable with receiving care in this setting,” dispelling concerns that the post-pandemic reluctance to seek inpatient services would persist indefinitely. This attitudinal shift among patients contributes significantly to the potential for a sustainable recovery.
Despite this progress, health systems are advised to brace for slender margins in the foreseeable future. Factors such as higher costs, ongoing labor shortages, and supply chain difficulties continue to pose challenges. Operating margins, while showing improvement, remain modest, reinforcing the need for strategic planning and adaptability in the evolving healthcare landscape.
One noteworthy trend is the increasing reliance on outpatient revenue, outpacing the growth in inpatient revenue. In May 2023, net operating revenue per calendar day was 9% higher than the previous year, with outpatient revenue rising by an impressive 14% year over year, while inpatient revenue saw a commendable 7% increase. Summarizing the importance of this shift, “The continuing shift in patient demand from inpatient to outpatient services is particularly important and will inform business decisions for years to come.”
Relief from High Labor Costs
Labor costs, a significant concern for health systems, are finally showing signs of relief. Although still above pre-pandemic levels, labor costs per adjusted discharge decreased by 9% in May 2023 compared to the same period in 2022. This decline offers a glimmer of hope for organizations grappling with the economic fallout of the pandemic.
The report also sheds light on the impact of states reducing Medicaid coverage, with around 1.5 million people losing coverage, according to an Associated Press analysis. Hospitals observed an uptick in charity care in April, potentially linked to individuals losing Medicaid coverage. As health systems await further insights into the repercussions of these policy changes, strategic planning becomes paramount to navigate the evolving landscape effectively.
There is a cautiously optimistic outlook for hospitals and health systems. While challenges persist, the signs of recovery are evident, with improving operating margins, a growing comfort among patients with inpatient care, and a notable shift towards outpatient services. The healthcare industry must leverage these positive indicators to re-evaluate and adapt their long-term business strategies, ensuring resilience and responsiveness to the changing dynamics of patient demand and the broader economic landscape.