Overview: Hospital and Health System Operating Margins Stagger in November
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.
U.S. healthcare organizations saw margins decline in November, driven by ongoing expense increases as the year neared its close. Highlights from the November 2024 data include:
- Operating margins narrowed for the nation’s hospitals and health systems as organizations faced mounting financial pressures in November.
- Total expenses rose year-over-year across both labor and non-labor metrics, with purchased services having the biggest increase at 8.2%.
- Patient demand dropped across both inpatient and outpatient metrics versus prior year and prior month in November, including a sizable 13.5% drop in outpatient visits from October to November.
- Growth in gross outpatient revenues outpaced inpatient revenue increases, rising 4.5% compared to 2.8% year-over-year, respectively.
- Per-physician expenses continued to rise in the fourth quarter, increasing 10.4% versus the prior year for November annualized.
Hospital Performance Benchmarks
The latest benchmarks illustrate the interplay of revenues and expenses on historically tight hospital operating margins.
Operating Margins: Operating margins for both hospitals and health systems took slight downturns in November, indicating increased financial pressures toward the close of 2024. The median year-to-date (YTD) health system operating margin narrowed from 1.8% in October to 1.7% in November, while the median YTD hospital operating margin dropped from 4.9% to 4.7% over the same period.*
Analysis of margin changes over time shows that the median change in hospital operating margin was flat year-over-year (YOY) and dropped 1.9 percentage points month-over-month. Margin changes varied significantly by region, with hospitals in the West and Northeast/Mid-Atlantic seeing YOY declines of 0.4 and 0.7 percentage point, respectively. Hospitals in other regions saw slight increases, with those in the Midwest having the biggest YOY increase of 0.8 percentage point. By size, hospitals with 100-199 beds had the biggest median YOY decrease at 1.1 percentage points while larger hospitals with 300-499 beds had the biggest YOY increase at 1.2 percentage points.
The median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin for hospitals nationally increased just 0.2 percentage point YOY and decreased 1.6 percentage points from October to November.
*Note: Operating margins are calculated on a percentage point change basis
Hospital Expenses: Hospitals continued to see overall expenses climb YOY. Purchased service expense had the biggest YOY jump at 8.2%, contributing to a 5.0% increase in total non-labor expense and a 4.7% increase in total expense. Total labor expense was up 5.4% from November 2023 to November 2024.
Hospitals saw some relief, with expenses easing month-over-month. Total non-labor expense had the biggest decrease at 4.5%, driven by a 14.0% drop in drugs expense and a 10.9% decrease in supply expense from October to November 2024. Total labor expense decreased 2.8% and total expense was down 3.7% month-over-month.
Expenses were up across most metrics on a per-patient basis. Labor expense per adjusted discharge had the biggest increases at 2.3% YOY and 4.6% month-over-month. Non-labor expense per adjusted discharge rose 2.0% YOY and 2.7% month-over-month, while total expense per adjusted discharge was up 1.5% YOY and 3.3% from October to November 2024.
Hospital Revenues: Gross inpatient, outpatient, and overall operating revenues rose YOY for a 19th consecutive month in November, with outpatient revenue growth again outpacing inpatient increases. Outpatient revenue was up 4.5%, inpatient revenue rose 2.8%, and gross operating revenue was up 3.9% from November 2023 to November 2024.
Looking at hospitals by region, YOY increases in outpatient revenue ranged from 3.4% for those in the Midwest to 6.1% for those in the Northeast/Mid-Atlantic. Inpatient revenue increases ranged from 2.5% for hospitals in the Midwest to 5.0% for those in the West. Hospitals in the Great Plains had the only decrease, with inpatient revenues down 1.7% YOY.
Nationally, hospitals saw gross revenues drop month-over-month, with outpatient revenue down 10.1%, inpatient revenue down 6.0%, and gross operating revenue down 8.6%. Net patient service revenue (NPSR) per adjusted discharge increased across both measures, rising 1.4% YOY and 1.0% month-over-month. NPSR per adjusted patient day rose 2.6% from November 2023 to November 2024 but was flat compared to the prior month.
*Note: Hospital operating margins may not be fully allocated with corporate expenses.
Patient Volume Benchmarks
Hospital inpatient and outpatient volumes drawn from analysis of more than 10 million patient visits.
Hospitals saw patient demand drop in November, with decreases across most metrics compared to both prior year and prior month. Emergency visits had the biggest YOY decrease at 7.6%, followed by observation visits at 3.5%. Outpatient visits decreased 0.6% and inpatient admissions were down 0.3% from November 2023 to November 2024. Compared to two years prior in November 2022, inpatient admissions were up just 1.4% and outpatient visits were up 2.7%.
Compared to the prior month, outpatient visits had the biggest drop in patient volumes at 13.5%. Emergency visits decreased 12.1%, observation visits were down 8.7%, and inpatient admissions decreased 6.6% from October to November 2024.
Looking at both inpatient and outpatient volumes, demand increased both YOY and month-over-month across most service lines, according to the latest service line data from October. Vascular had the biggest YOY increase at 11.1%, followed by hepatology at 10.9%. Neonatology and ear, nose, and throat (ENT) had the only YOY decreases at 1.9% and 1.5%, respectively. Breast health had the biggest month-over-month increase in patient volumes at 17.4%.
Patient volumes rose YOY in October across 14 of 15 common procedure types, with increases ranging from 0.5% for inpatient primary hip replacements to 21.9% for outpatient positron emission tomography (PET). Inpatient primary knee replacements again had the only decrease, with patient volumes down 12.9% YOY as such procedures shift to outpatient settings.
Children’s hospitals saw patient volumes decrease across all measures in November. Inpatient admissions had the biggest YOY decrease at 11.4%, followed by emergency visits at 10.3%. Outpatient visits had the biggest month-over-month decrease, dropping 13.1% from October to November 2024.
Physician Practice Benchmarks
A look at last month’s key performance indicators from more than 10,000 physician practices.
Physician practices nationwide again saw sizable increases across most metrics in November. The level of investment needed to support physician practices continued to rise, with the median investment per physician full-time equivalent (FTE) reaching $332,957 annualized for the month, marking increases of 10.0% compared to 2023 and 18.0% versus 2022.
Physician expenses also remained high. The median total direct expense per physician FTE for November was $1.1 million annualized. The metric jumped 10.4% versus 2023 and 19.2% compared to 2022. Per-physician revenues also continued to climb. The median net revenue per physician FTE was $748,186 for November annualized, up 11.7% from 2023 and 20.0% from 2022.
Physician productivity rose as staffing levels continued to drop. The median physician work relative value units (wRVUs) per FTE were 6,290.93 for November annualized, up 7.8% compared to 2023 and 13.6% from 2022. Meanwhile, median support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — were 2.83 for the month (annualized), down 6.0% compared to 2023 and 5.8% versus 2022.
