This report highlights the latest trends in financial performance for U.S. hospitals and physician groups, drawn from monthly data from more than 135,000 physicians and over 1,600 hospitals. 

Overview: Hospitals See Consistent Growth Across Key Metrics 

Hospitals, health systems, and physician practices saw ongoing signs of improvement in financial performance metrics, but mounting expenses remain a concern. Highlights from the May data include:

• The median, year-to-date hospital operating margin rose to 5.0% in May, as the metric shows encouraging performance so far in 2024, holding above 4.5% for a fifth consecutive month. 
• Changes in hospital margins over time suggest instability, however, with the median change in operating margin down nearly 1 percentage point from April to May 2024. 
• Elevated drug and supply expenses continue to strain hospitals, with total drugs expense up 8.3% and total supply expense up 8.1% compared to the same month last year. 
• Inpatient admissions had sizable increases, rising 11.7% versus May 2022 due in part to the ongoing effects of expansion of the Two-Midnight Rule to Medicare Advantage patients. 
• Physician expenses rose to $1.09 million for May annualized, up 12.8% from 2023 and up 21.1% from 2022, placing pressure on physician practice operations. 

Hospital Performance Benchmarks

The latest benchmarks illustrate the interplay of revenues and expenses on historically tight hospital operating margins.

Operating Margins: Hospital operating margins rose in May, marking the fifth month of strong performance after peaking at 5.2% in January. The median year-to-date (YTD) hospital operating margin was 5.0% for May, up from 4.7% in April. Operating margins also improved at the health system level. The median YTD health system operating margin was 2.3% for May, up from 1.5% in January and 1.8% in April.

Changes in hospital margins over time, however, suggest instability. The median change in operating margin was up just 0.3 percentage point from May 2023 to May 2024 and dropped 0.9 percentage point from April to May 2024. By region, the median year-over-year (YOY) change in hospital operating margin ranged from a 0.9 percentage point decrease for hospitals in the Midwest to a 1.8 percentage point increase for those in the Northeast/Mid-Atlantic.

At a national level, the median change in hospital operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was essentially flat, up just 0.1 percentage point YOY. Compared to the prior month, the metric decreased 1.0 percentage point.

Hospital Expenses: YOY growth in overall non-labor expenses surpassed labor expense increases in May, as hospitals continued to see sizable growth in drug and supply expenses. Total non-labor expense rose 7.3% from May 2023 to May 2024, driven by an 8.1% increase in supply expense and an 8.3% increase in drugs expense over the same period. Month-over-month, total non-labor expense and supply expense both rose 1.1% and drugs expense increased 3.2%. Total labor expense was up 4.4% YOY and 2.4% month-over-month, and total expense increased 5.7% YOY and 1.6% over the previous month.

Expense trends were mixed after adjusting for volumes. Non-labor expense per adjusted discharge increased 2% YOY, labor expense per adjusted discharge decreased 1.5% YOY, and total expense per adjusted discharge was nearly flat, up just 0.1% YOY.

Hospital Revenues: Growth in gross hospital revenues remained strong in May but slowed somewhat compared to double-digit increases in April. Outpatient revenue again saw the biggest increases, with the metric rising 8% from May 2023 to May 2024, and 2.2% from April to May 2024. By region, YOY outpatient revenue growth ranged from 6.2% for hospitals in the Midwest to 10.7% for those in the West.

At a national level, inpatient revenue was up 6.7% YOY and 1% month-over-month, while gross operating revenue increased 7.7% YOY and 2% versus April 2024. May marked the 13th consecutive month of YOY growth for inpatient, outpatient, and overall gross operating revenues. Net patient service revenue (NPSR) per adjusted discharge was nearly flat, up just 0.1% YOY and down 4.3% month-over-month in May.

Patient Volume Benchmarks

Hospital inpatient and outpatient volumes drawn from analysis of more than 10 million patient visits.

Patient volumes were up in May, increasing across all metrics versus May 2023. Inpatient admissions had the biggest YOY increase at 6.1%, followed by outpatient visits at 3.3%. Emergency department visits increased 2.3% over the same period, and observation visits rose just 0.4%. Healthcare organizations in the Midwest had the biggest YOY increase in both inpatient admissions and outpatient visits, which jumped 6.7% and 4.7% from May 2023 to May 2024, respectively.

Nationally, month-over-month increases ranged from 2.5% for observation visits to 3.3% for emergency visits, while outpatient visits decreased slightly at 0.1%. Inpatient admissions were up 2.9% month-over-month. Compared to two years ago in May 2022, inpatient admissions increased 11.7%, due in part to the ongoing effects of January’s expansion of the Two-Midnight Rule to Medicare Advantage patients.

Patient volumes rose for all service lines YOY, with cancer having the biggest jump at 15.5% across both inpatient and outpatient volumes (according to the latest service line data from April). The trend was a reversal from the previous month, when patient volumes decreased YOY across all but two service lines. Month-over-month, patient volumes increased for all but four service lines: ear, nose, and throat (ENT); infectious disease; neonatology; and normal newborn. Of those, infectious disease had the biggest decrease at 15.9% from March to April 2024.

Patient volumes also increased across most measures for 15 common procedure types. Outpatient positron emission tomography (PET) had the biggest YOY increase at 19.3%, and outpatient primary hip replacement surgeries had the biggest month-over-month increase at 10.8%. Outpatient primary knee replacement surgeries were up 12.7% YOY, while inpatient primary knee replacement surgeries decreased 0.9% YOY — illustrating the ongoing shift of such surgeries from inpatient to outpatient settings.

Children’s hospital volumes remain on a rollercoaster, with most metrics decreasing in May after increasing in April and decreasing in March. Outpatient visits had the biggest decreases, down 3% versus May 2023 and down 3.6% from April 2024. Inpatient admissions were the only metric to see increases, up 2.4% YOY and up 0.4% month-over-month.

Physician Practice Benchmarks 

A look at last month’s key performance indicators from more than 10,000 physician practices.

Expenses continue to climb for physician practices nationwide. The median, total direct expense per physician full-time equivalent (FTE) rose to $1.09 million for May annualized. That represents a 12.8% increase from 2023 and a 21.1% jump from 2022.

High expenses contributed to double-digit increases in the level of investment needed to support physician practice operations. The median investment per physician FTE was $314,487 for the month (annualized), up 11.2% from 2023 and 17.8% from 2022.

At the same time, physician revenues grew, with the annualized, median net revenue per physician FTE up 11.4% from 2023 and up 21.8% from 2022 at $743,053 for May. Higher physician productivity helped push up revenues. Physician work relative value units (wRVUs) per FTE rose to 6,335.27 annualized for the month. That marks an increase of 9.1% from 2023 and 13.5% from 2022. Support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — decreased 5.1% from 2023 and 6.5% from 2022 to 2.93 in May.