Hospital operating margins break even in April, though Medicaid redeterminations are looming

By Dave Muoio / May 31, 2023

Hospitals’ year-to-date operations broke even in April, though a rise in bad debt and a dip in volumes suggest the upward momentum will likely be short-lived, healthcare consulting firm Kaufman Hall wrote in the latest release of its monthly industry report.

The group’s median year-to-date operating margin index rose slightly from -0.3% in March to 0% in April, while its monthly operating margin index landed at -0.2% for April.

Volumes dipped slightly from March across inpatient, outpatient and, to a lesser extent, emergency department settings, the firm found, but still remain elevated over the same time last year. Average length of stay increased 1% over March but remains 1% lower than in April 2022 when more hospitals were seeing COVID-19 patients.

Hospitals also saw month-over-month dips in per-day inpatient revenue (-4%) and outpatient revenue (-6%) that, again, are still improvements over 2022, according to the report. Net patient service revenue per adjusted discharge and per adjusted patient day were down 1% and 2%, respectively, from March.

Meanwhile, elevated costs are continuing to suppress hospitals’ operating margins, Kaufman Hall wrote. Though total expense per day dipped 1% from March—largely thanks to reduced drug and supply spending—total expense per adjusted discharge was 3% higher in April than in March. Compared to year-to-date 2020, hospitals are spending 10% more per adjusted discharge in 2023.

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a release. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”

That path forward could be a bumpy one for hospitals with the COVID-19 public health emergency finally winding down.

An uptick in bad debt and charity care spotted in April suggests Medicaid disenrollment could already be having an impact on hospitals’ revenue streams, Kaufman Hall wrote. Specifically, a metric measuring bad debt and charity as a percent of hospitals’ gross operating revenue rose 4% from March to April.

“With states conducting their Medicaid eligibility redetermination, it’s predicted that hundreds of thousands of people will ultimately become uninsured,” Swanson said. “The data indicate that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care.”

Kaufman Hall’s monthly reports incorporate information from more than 900 U.S. hospitals, the data from which are collected by Syntellis Performance Solutions.