Hospital and Health System Operating Margins Stabilized in the First Half of 2024, According to New Strata Data
July 25, 2024
Patient Volume Declines and Rising Expenses Reflect Ongoing Volatility
CHICAGO – July 25, 2024 – U.S. health systems saw operating margins stabilize at the end of the second quarter, with the median, year-to-date (YTD) health system operating margin holding steady at 2.3% for a second consecutive month in June, according to new data from Strata Decision Technology.
While still narrow, it marks an improvement over median, YTD health system operating margins of less than 1% in the second half of 2023. Individual hospitals also remained on more stable ground throughout the first six months of 2024, ending the second quarter with a median YTD operating margin of 4.9% in June, down slightly from 5.0% in May.
“Hospital and health system operating margins leveled off in recent months, even as expenses rose and patient volumes declined in June,” said Steve Wasson, chief data and intelligence officer at Strata Decision Technology. “While overall financial performance for these critical healthcare organizations has strengthened compared to recent years, they continue to experience significant market volatility.”
As a primary example, patient volumes decreased across most measures in June. Outpatient visits and observation visits both saw the biggest year-over-year (YOY) declines at 4.2%. The declines represent a reversal from YOY volume increases seen in May. The only metric to see an increase was inpatient admissions at 1.4% YOY. Volume declines were more significant month-over-month. Outpatient visits had the steepest drop at 10.2%, followed by emergency visits at 9.5%. Observation visits decreased 6.3% and inpatient admissions were down 5.5% from May to June 2024.
Hospitals continue to feel the weight of high expenses. YOY growth in labor expenses outpaced non-labor expense increases in June. Total labor expense increased 5.2% and total non-labor expense was up 3.3% from June 2023 to June 2024, contributing to a 4.8% increase in total expense over the same period. As with patient volumes, that represents a reversal from the prior month as hospitals saw some of the year’s first decreases in supply and drugs expenses.
Supply expense was down 2% YOY and 7.2% month-over-month in June, marking the first decline in the metric so far in 2024. Drugs expense dropped 5.4% YOY and 10.5% versus May 2024, marking only the second YOY decrease in that metric this year. Hospitals also saw overall expenses ease month-over-month. From May to June 2024, total expense was down 2.8%, total labor expense decreased 3.0%, and total non-labor expense was down 2.7%.
Rising expenses remain a concern for physician practices across the country. The median, total direct expense per physician full-time equivalent (FTE) was $1.08 million for the second quarter. That represents a 16.3% increase from Q2 2023 and a 2.1% increase from the first quarter of this year. By region, increases in the metric from Q2 2023 to Q2 2024 ranged from 13.6% for physician practices in the Midwest to 21.3% for those in the West.
High expenses contributed to ongoing increases in the level of investment needed to support physician practice operations. The median investment per physician FTE was $325,414 for the quarter, up 12.3% from the second quarter of 2023.
Read Strata’s Monthly Healthcare Industry Financial Benchmarks to learn more.
About the Data
This report uses data from Comparative Analytics and Strata’s StrataSphere® database. Comparative Analytics offers access to near real-time data drawn from more than 135,000 physicians from over 10,000 practices and 139 specialty categories, and from 500+ unique departments across more than 1,600 hospitals. Comparative Analytics also provides data and comparisons specific to a single organization for visibility into how their market is evolving. StrataSphere is a unique and comprehensive data-sharing platform that helps providers leverage the power of a network that represents approximately 25% of all provider spend in U.S. healthcare. This report incorporates data from more than 600 hospitals from more than 120 health systems with StrataJazz® Decision Support, as reported in the National Patient and Procedure Volume TrackerTM.
About Strata Decision Technology
Strata Decision Technology provides a cloud-based platform for software and service solutions to help organizations better analyze, plan, and perform in support of their missions. With the combination of Syntellis Performance Solutions’ Axiom solutions, more than 2,300 organizations rely on Strata to provide their financial analytics, planning, and performance solutions. Strata has been named the market leader for Business Decision Support for 18 consecutive years. By uniting these two industry leaders, Strata continues to deliver market-leading solutions and world-class service, with an increased focus on accelerating innovation. For more information, please go to www.stratadecision.com.
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