While health systems' margins dropped in 2022, most provider organizations are wrapping up the first half of 2023 on a more positive note. But analysts warn new threats to bottom lines may be on the horizon.
“Margins have begun to recover, but they’re not where they were pre-pandemic,” said Matt Wolf, director and healthcare senior analyst at the consultancy RSM US.
The adjusted operating margins at large health systems (those with $3 billion in total revenue or higher) decreased between 2020 and 2022. Adjusted operating margin includes government aid, less any taxes or payment in lieu of taxes.
Growth in patient volumes and decreasing reliance on contract labor have helped systems’ finances to some extent. New pressures could emerge, however, as more services move to the outpatient sphere and to patients’ homes.
“Payers like it, patients like it and volumes will continue to move in this direction,” Wolf said.
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Even as hospital-at-home can expand access to services for patients, systems that rely heavily on inpatient care may not be prepared for the shift, he said.
“We still have all these big expensive facilities that break even based on volume,” he said. “Even if [some systems] are positioned for the change, they’re still at risk because of these facilities that need to be fully occupied to be financially sustainable.”
Wolf said hospitals in rural communities may be especially vulnerable to the effects.
“What do you do with that extra space?” he said.
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