Hospitals and health systems are making more money taking care of patients, with some reporting double-digit increases in patient revenue in the latest quarter.
Net patient revenue, or revenue from providing healthcare services after contractual discounts, was up substantially for health systems in the first quarter, primarily driven by higher utilization and improved payer rates. Touting the improvement was a popular topic in recent earnings reports. Net patient revenue makes up the majority of providers' total operating revenue and has big implications for the bottom line.
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Before the COVID-19 pandemic, health systems generally expected to see annual growth in net patient revenue, given the usual cost increases built into payer contracts. However, the pandemic shock resulted in flat or depressed numbers, said Daniel Steingart, vice president for Moody’s Ratings.
Net patient revenue is increasing as patients seek more healthcare services, and providers secure small rate bumps in some contract negotiations.
“Obviously, the hospitals want higher rates, and the payers want to pay lower rates," Steingart said. "You can’t come to those negotiations in good faith and say, ‘we’re offering a 0% increase,’ when it’s clear salary expenses ballooned and [pharmaceuticals] and supplies grew quite a bit."
Renton, Washington-based Providence reported an 11% year-over-year increase in net patient revenue, to $5.7 billion in the first quarter. AdventHealth, in Altamonte Springs, Florida, reported a 14% year-over-year increase, to $4.3 billion. Chicago's CommonSpirit Health reported a 14% increase, to $8.4 billion in its fiscal third quarter, ended March 31. At Cleveland Clinic, net patient revenue increased 9%.
Mark Pascaris, director at Fitch Ratings, said the challenge for health systems is to make sure expenses stay under control. Regions with fast-growing populations tend to see greater gains since there are more patients to serve, he said.
Admissions at facilities open at least a year grew by 10% at AdventHealth in the quarter ended March 31. Providence reported a 3% jump in inpatient admissions while Cleveland Clinic reported a 6.7% increase.
Rick Kes, a healthcare senior analyst at professional services firm RSM, said continued increases in net patient revenue also reflect health systems’ efficiency efforts.
Facing tight margins, more systems are implementing technology and analytics to assess their revenue cycle management processes, including what factors trigger payer reimbursement denials and prior authorization requests, Kes said. For example, systems can use technology platforms to automate claims appeals or look for certain payer codes that tend to disrupt the process.
“They had to really become a lot more intentionally focused on those areas,” Kes said.
