Big nonprofit and for-profit health systems are generally seeing a marked improvement in financial results this year, largely due to rising patient volumes.
The increase in patients is bringing a much-needed revenue boost for many providers still looking to leave the COVID-19 pandemic's impact on their balance sheets fully behind them.
Related: CommonSpirit, Providence, others see gains in net patient revenue
However, increased volumes require a balancing act. The influx of patients may generate more revenue, but it also means more spending on supplies and staff to treat them, in addition to potential capacity constraints.
Here’s why volumes are growing and what that means for health systems' finances.
What is driving patient volume growth?
Industry watchers cite various reasons for the increase, including overall population growth in fast-growing markets such as Florida and Texas and the long-running rebound from the COVID-19 pandemic. An aging population that requires more healthcare services is another driver.
Providers are improving their efficiency and capacity to accommodate the increase. Oakland, California-based Kaiser Permanente, for example, broke ground this summer on medical offices in Colorado and plans to open medical offices in Salinas, California, in 2025.
Efforts to reduce the inpatient length of stay and optimize surgery schedules have allowed Renton, Washington-based Providence to see more patients, Chief Financial Officer Greg Hoffman said. The nonprofit system — which reported net income of $289.2 million in the second quarter, compared with a $232.1 million loss in the year-ago period — mainly attributesd the 6% increase in second-quarter operating revenue to higher patient volumes.
Where is the volume growth occurring?
Many systems are seeing growth across the board in inpatient, outpatient and emergency care, although it varies by market.
Cleveland Clinic in Ohio saw a 3% increase in inpatient admissions, a 3.3% increase in outpatient surgeries and a 4% increase in emergency department visits in the second quarter. The nonprofit system reported net income of $187.8 million in the quarter, compared with $145.2 million in the year-ago period.
The big winner in patient volumes in recent years has been outpatient care, as procedures continue to shift away from the inpatient setting.
In the second quarter, for-profit Tenet saw strong volumes in orthopedic, urology and gastrointestinal procedures. Total joint replacements, for example, were up 23% over the prior year, CEO Dr. Saum Sutaria said on a July earnings call with analysts. The for-profit system's quarterly net income more than doubled from a year ago to $259 million, or $2.64 per diluted share.
Sutaria described Dallas-based Tenet’s ambulatory surgery centers as “incredibly busy.”
“From a long-term perspective, it's an incredibly consistent business,” he told analysts.
Why have emergency department visits increased?
Matthew Cahill, assistant vice president at credit rating agency Moody’s Ratings, said increased emergency department visits are likely due to more normalized demand — and the recent surge in COVID-19.
This year's growth rates may also look higher compared with historically low volumes in recent years, said Brian Tanquilut, managing director of healthcare services equity research at investment banking firm Jefferies.
Sam Hazen, CEO at Nashville, Tennessee-based HCA Healthcare, said the for-profit system's emergency room revitalization program has improved efficiency. The for-profit system, which reported net income of $1.5 billion, or $5.53 per diluted share in the second quarter, said emergency department visits increased 5.5%.
Why is pent-up demand from the pandemic still a factor?
More than four years later, health systems are still grappling with the effects of the COVID-19 pandemic.
Cahill said labor shortages restricted access for patients who are now seeking care after pulling back during the COVID-19 pandemic.
Staff shortages and high labor costs continue to be an issue for health systems, but many are expanding talent pipelines and enhancing benefits to attract talent as they adjust to the new normal of competitive salaries and wages.
Health systems can focus more on matching staffing levels to patient demand as labor challenges subside, Cahill said.
“As we move on, of course, [the pandemic] is less and less the answer for volume gains, but I think there’s still a little bit of lingering effect,” said Mark Pascaris, senior director at credit rating agency Fitch Ratings.
What challenges does volume growth create?
More patients mean more expenses. Rochester, Minnesota-based Mayo Clinic, for example, reported a 9.4% year-over-year expense increase in the second quarter, which it partially attributed to adding staff to accommodate higher patient volumes. Expenses from salaries and benefits, which make up about 57% of the nonprofit health system’s total expenses, rose 7%.
Still, Mayo Clinic reported $613 million in net income in the second quarter, a 12% year-over-year increase.
Some health systems, including Mayo Clinic, are spending money on additional infrastructure to meet patient demand.
Patient volume isn't always the guiding factor for overall performance.
"It’s just a function of resetting and getting the expense growth to a point where that can start to normalize,” Pascaris said. “Who’s doing a better job of managing expenses in order to get bottom-line results, not necessarily back to where they were pre-pandemic, but to a more sustainable level?”
