Health System Operating Margins See Slight Gains After Three Months of Declines, According to New Strata Data 

CHICAGO – Nov. 25, 2024 – Health systems nationwide saw slight margin gains in October following three months of declines, while hospital operating margins narrowed slightly following two months of increases.  

The median year-to-date (YTD) health system operating margin rose from 1.6% in September to 1.8% in October. Meanwhile, the median YTD hospital operating margin dropped from 5.1% to 4.9% over the same period.  

“It’s encouraging to see that health systems had even minimal gains to start the fourth quarter, given the performance declines they experienced throughout Q3,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. “At the same time, the decrease in operating margins for individual hospitals reflects the need for organizations to remain vigilant as they contend with unrelenting increases across both labor and non-labor expenses.” 

Looking at shifts in operating margins over time, the median change in operating margin rose 1.7 percentage points both year-over-year (YOY) and month-over-month in October. By region, the median change in operating margin ranged from increases of 1.2 percentage points for hospitals in the Northeast/Mid-Atlantic to 3.1 percentage points for those in the south.   

Overall hospital expenses continued to climb. Total non-labor expense had the biggest increase, rising 10% from October 2023 to October 2024 as drugs expense jumped 15.2%, supply expense increased 13.2%, and purchased service expense rose 11.6% over the same period. Total labor expense was up 6.5%, and total expense increased 8.5% YOY. From September to October 2024, total expense was up 4.6%, total non-labor expense increased 4.5%, and total labor expense rose 4.4%.  

Demand for outpatient services continued to climb, with growth in outpatient visits up 8.6% YOY and 12.8% month-over-month, outpacing inpatient volume growth for the month. Inpatient admissions rose 4.7% YOY and 3.7% from September to October 2024. Observation visits decreased 1.2% YOY but increased slightly at 0.6% month-over-month, while emergency visits were down 1.4% YOY and 3.1% versus the prior month.  

Patient volumes increased across most service lines from October 2023 to October 2024. Allergy and immunology had the biggest YOY increase at 7.8%, followed by cardiology at 7.1%. Infectious disease had a slight decrease, with patient volumes down 0.7% YOY following three months of increases.  

Gross hospital revenues remained on the rise. October marked the 18th consecutive month of YOY increases for inpatient, outpatient, and overall gross operating revenues. Outpatient revenue growth continued to outpace inpatient revenue increases, further reflecting mounting demand for outpatient services. From October 2023 to October 2024, outpatient revenue rose 12.7%, inpatient revenue increased 5.9%, and gross operating revenue rose 11.2%. Month-over-month, outpatient revenue jumped 10.3%, inpatient revenue was up 4.5%, and gross operating revenue increased 8.1%.