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: Health System Margins Continue to Narrow While Hospitals See Slight Gains

U.S. healthcare organizations saw some improvements in revenues and patient demand in September, but expense pressures contributed to lower margins for the largest organizations. Highlights from the September data include:

• The median health system operating margin narrowed for a third consecutive month, decreasing from a 12-month high of 2.3% in May and June to 1.6% in September, while the median hospital operating margin rose slightly.
• Year-over-year growth in inpatient volumes outpaced outpatient volume increases, but patient demand decreased across both inpatient and outpatient metrics compared to the prior month.
• Sizable expense increases for purchased services, supplies, and drugs contributed to a 6.3% rise in total non-labor expenses compared to the same month in 2023.
• Per-physician expenses reached $1.07 million for the third quarter, representing an 8.6% increase from the same quarter in 2023.

Hospital Performance Benchmarks

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

Operating Margins: U.S. health systems saw operating margins drop for a third consecutive month in September. The median year-to-date (YTD) health system operating margin was 1.6% in September, down from 1.9% in August and down from a 12-month high of 2.3% in May and June. Meanwhile, hospital operating margins inched upward for a second consecutive month. The median YTD operating margin for hospitals nationwide rose to 5.1% in September, up from 4.9% in August and 4.8% in July.*  

Looking at how hospital margins have changed over time, the median change in hospital operating margin rose 2.1 percentage points from September 2023 to September 2024, and decreased just 0.1 percentage point from August to September 2024. For hospitals in different regions, the median change in operating margin ranged from increases of 1.1 percentage point for those in the Northeast/Mid-Atlantic to 3.9 percentage points for hospitals in both the West and Great Plains. 

The median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin for hospitals nationwide rose 1.8 percentage point YOY and decreased 0.2 percentage point month-over-month. 

Hospital Expenses: Hospitals continued to see significant year-over-year (YOY) increases in total expenses but decreases versus the prior month. Total non-labor expense had the biggest YOY increase at 6.3%, driven by an 8.8% YOY rise in purchased services expense, an 8.6% YOY increase in supply expense, and a 6.8% rise in drugs expense. Total labor expense was up 5.2% and total expense increased 5.9% from September 2023 to September 2024. 

Hospitals saw some relief month-over-month. Total expense decreased 2.2%, total labor expense was down 2.3%, and total non-labor expense decreased 2.0% from August to September 2024. 

Expenses increased across both timeframes after adjusting for patient volumes. Total expense per adjusted discharge rose 2.8% YOY and 3.7% month-over-month, labor expense per adjusted discharge was up 1.5% YOY and 3.0% month-over-month, and non-labor expense per adjusted discharge increased 4.3% YOY and 3.7% month-over-month. 

Hospital Revenues: Gross hospital revenues saw sizable YOY increases in September but were down compared to August. Outpatient revenue had the biggest YOY jump at 9.1%. Inpatient revenue rose 6.4% YOY and gross operating revenue increased 8.7% YOY. Month-over-month, outpatient revenue dropped 4.8%, inpatient revenue was down 3.2%, and gross operating revenue decreased 4.2%. 

By region, YOY increases in gross outpatient revenue ranged from 7.6% for hospitals in the South to 10.9% for those in the Northeast/Mid-Atlantic. For inpatient revenue, YOY increases ranged from 4.4% for hospitals in the Northeast/Mid-Atlantic to 8.0% for those in the West. 

Revenues increased after being adjusted for patient volumes. Net patient service revenue (NPSR) per adjusted discharge rose both YOY and month-over-month at 4.2% and 2.1%, respectively. NPSR per adjusted patient day was up 5.5% YOY and 0.4% from August to September 2024. 

Patient Volume Benchmarks

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

Patient demand was mixed in September, decreasing across key metrics month-over-month, but increasing for both inpatient and outpatient volumes YOY. Inpatient admissions had the biggest increase from September 2023 to September 2024 at 3.8%, while outpatient visits rose 3.6% over the same period. Observation visits decreased 1.2% and emergency visits were down 2.9% YOY.

From August to September 2024, outpatient visits decreased 5.7% and inpatient admissions were down 4.5%. Compared to two years ago in September 2022, inpatient admissions were up 7.0% and outpatient visits increased 3.0%.

YOY volume changes also varied by service line. Infectious disease had the biggest YOY increase at 8.3%, followed by allergy and immunology at 4.0%. The ear, nose, and throat service line had the biggest decrease at 5.1% YOY, followed by breast health, which saw volumes decline 4.3% YOY. 

Patient volumes increased YOY across eight of 15 common procedure types. Outpatient positron emission tomography (PET) again had the biggest YOY increase at 11.7%, followed by outpatient chemistry/hematology lab procedures at 8.6%. Inpatient primary knee replacements continued to have the biggest declines, with volumes for such procedures dropping 21.4% YOY as such procedures shift to outpatient care settings. 

Children’s hospitals also continued to see mixed volumes. Inpatient admissions increased 3.2% YOY while outpatient visits decreased 2.6% from September 2023 to September 2024. Observation visits were up 1.0% and emergency visits decreased 5.2% over the same period, according to the latest data as of Sept. 30, 2024. 

Physician Practice Benchmarks 

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

The nation’s physician practices saw sizable increases across most metrics for the third quarter. The level of investment needed to support practice operations remained on the rise, with the median investment per physician full-time equivalent (FTE) reaching $320,785 for Q3 2024, up 9.2% versus the same quarter in 2023 but down 1.7% compared to Q2 2024.  

High expenses are a primary driver of the increase in required investments. The median total direct expense per physician FTE rose to $1.07 million for the third quarter. That is up 8.6% compared to Q3 2023 and up 1.3% from Q2 2024. Meanwhile, per-physician revenues continued to climb. The median net revenue per physician FTE was $752,780 for the quarter, jumping 11.4% from Q3 2023 and 2.4% from Q2 2024. 

Physician productivity rose as staffing levels declined. The median physician work relative value units (wRVUs) per FTE were 6,406.52 for Q3 2024. That represents an increase of 8.2% from the third quarter of last year and 1.7% from Q2 2024. Median support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — were 3.13 for the quarter, down 5.1% compared to Q3 2023 but up 3.2% versus Q2 of this year.