In August 2023, hospital outpatient revenue is growing due to patients seeking cost-effective healthcare options. Positive financial trends are emerging, with a 1.4% median operating margin and increased patient volumes contributing to higher revenues. Outpatient care is driving this growth, with an 11.6% monthly increase. However, expenses are also on the rise, particularly in non-labor, drug, and supply costs. Physician practices are seeking increased financial support from hospitals as expenses increase, while physician productivity has improved.
According to a recent performance trends report by Strata Decision Technology and Syntellis Performance Solutions, hospital outpatient revenue is on the rise as patients increasingly opt for more cost-effective healthcare settings.
This report is based on data from over 135,000 physicians across 10,000 practices and encompasses more than 500 departments in over 1,300 hospitals.
As of August 2023, there are positive indications for the financial stability of hospitals. Median operating margins have shown improvement, increasing from 1.1 percent in July to 1.4 percent in August. This marks the sixth consecutive month of positive margins.
These encouraging margins can be attributed to higher patient volumes and increased revenues. Adjusted discharges have risen by 9.3 percent month-over-month and 6.5 percent year-over-year. Additionally, adjusted patient days have increased by 5.6 percent since July, and operating room minutes have seen a 13.7 percent month-over-month increase.
The gross operating revenue has shown significant growth, up 8.7 percent from July and 7.8 percent from August 2022. This growth is primarily fueled by the expansion of outpatient revenue. Patients are increasingly seeking outpatient care, resulting in an 11.6 percent month-over-month and 10 percent year-over-year increase in outpatient revenue. In contrast, inpatient revenue has experienced more modest growth, with a 3.9 percent increase month-over-month and 4.0 percent year-over-year.
Notably, the demand for outpatient services, particularly in orthopedic care, has been a key trend. In May 2023, outpatient volumes for orthopedic care were 33 times higher than inpatient volumes. On average, health systems have witnessed a 29.9 percent growth in outpatient volumes, from 373,266 per month in January 2022 to 484,857 per month in May 2023. Inpatient orthopedic volumes also increased by 30.6 percent over the same period but remain significantly lower than outpatient visits at 14,304 per month in May 2023. Inpatient specialty care, particularly in orthopedics, is negatively impacting hospital finances, with the median hospital incurring an average loss of $3,630 for each inpatient orthopedic visit in May 2023.
Despite the increase in hospital revenues, expenses have also grown in August. Total expenses have risen by 4.2 percent from the previous year and 3.7 percent from July 2023. This increase includes higher non-labor expenses (6 percent), drug expenses (7.3 percent), and supply expenses (5.4 percent) compared to August 2022.
Total labor expenses have also increased, rising by 3.0 percent from August 2022 and 0.6 percent from July 2023. Notably, the share of hours worked by contract nurses, which had previously contributed to high labor costs, has declined from 13.4 percent in February to 9.2 percent in August.
Additionally, the median hourly rate that hospitals pay agencies to hire contract registered nurses has decreased from $110.25 per hour in September 2022 to $86.90 in August 2023. It’s worth noting that these rates, while lower, are still higher than pre-pandemic levels and exceed the rates paid to employed registered nurses.
As expenses increase, physician practices are increasingly requiring financial support from hospitals, health systems, and larger physician groups. Physician expenses have risen by 6.2 percent since 2022, reaching an annualized total of $927,203.
Moreover, the median investment per physician full-time equivalent (FTE) has increased by 6.4 percent from 2022 and 12.1 percent from 2021, reaching $254,362 for August annualized. This growth in investment has been consistent across various specialties.
On a positive note, physician productivity has increased by 5.9 percent since August 2022, net revenue per physician FTE has risen by 10.1 percent compared to the previous year, and practice staffing levels have decreased by 1.8 percent.