Hospitals were more profitable in April compared with the same month last year, as some facilities finally see the fruits of their cost-cutting efforts, a new Kaufman Hall report shows.
Operating margins grew more than 20% and operating earnings before interest, taxes, depreciation and amortization grew by 8.6% in April compared with the prior-year period, the consultancy wrote in its National Hospital Flash Report, which is based on data from more than 600 not-for-profit and for-profit hospitals. Increased volumes and decreased lengths of stay also contributed to the better performance.
The report does not reveal average operating or EBITDA margins across the hospitals. Not-for-profit hospitals' median operating margins were 1.7% in 2018, down from 1.8% in 2017, according to an April report from Moody's Investors Service.
Starting last year and continuing this year, Kaufman Hall's analysts have noticed hospitals are focusing a lot of attention on cost-cutting initiatives, said Erik Swanson, vice president at Kaufman Hall.
"It is a combination of both patients staying less due to a hospital's focus on clinical care and variation," he said, "as well as while the patient is at the hospital, how to efficiently use those resources."
The new report shows those efforts are having an effect. Total expense per adjusted discharge declined both year-over-year and month-over-month. Nonlabor expense per adjusted discharge declined 4% year-over-year, while purchased service expense per adjusted discharge declined 3.6%, the report found.
As health systems have grown larger and more complex over the years, they've increased their use of purchased services, such as consulting, said Jim Blake, a managing director at Kaufman Hall. He cautioned that the decline in this latest report doesn't necessarily indicate a broader trend.
"Sometimes it's just tightening of budgets," Blake said. "Other times it's showing an actual trend."
Kaufman Hall releases its Hospital Flash Report monthly, and Blake said that's one trend he will keep an eye on.
Meanwhile, hospitals' supply expense per adjusted discharge grew more than 7% in April compared with the prior-year period, the report found. Drug expense per discharge grew 5.6% in that time.
Drug pricing and utilization pose a growing challenge for hospitals, Swanson said. Even as hospitals implement cost-cutting measures, it takes sophisticated tools to measure whether they're spurring improvements, he said. For that reason, it might take longer for the benefits of those initiatives to become clear.
Net patient service revenue per unit of service fell short of budget expectations in April, Kaufman Hall found. Volume growth in cheaper outpatient care appears to temper the per-unit revenue growth relative to hospitals' budgets. Bad debt and charity care increased 2.8% year-over-year, but were favorable compared with hospitals' budgets and the prior month.
Hospital discharges grew 2% year-over-year across the hospitals surveyed, and emergency department visits grew 1.7% in that time, the report found. Average length of stay declined 2.9%.