Overall, hospital operating margins have remained steady over the past several years. Data for the third quarter of 2009 through the third quarter of 2010 indicate that all hospitals experienced a slight decline in operating margins, from 3.3 to 2.8 percent, over this period. All classes of hospitals studied-major teaching; teaching; and large, medium, and small community hospitals-posted similar declines: Large community hospitals and teaching hospitals saw the largest declines, while operating margins for major teaching hospitals and medium community hospitals stayed relatively flat.
Exhibits 1 & 2
A hospital's ability to hold operating profits relatively steady over the longer term is likely tied to its ability to control expenses to match fluctuations in revenues. An analysis of these hospitals' median net patient revenue and expense per adjusted discharge over the same period-with revenue data adjusted for the average wage index (AWI) and expense data adjusted for AWI and case mix-discloses that revenues for all hospitals increased 3.2 percent, while expenses increased just slightly more slowly, at 2.8 percent. For the hospital classes, results were mixed:
- Major teaching and large community hospitals saw revenues increase more than expenses.
- Teaching hospitals, conversely, saw expenses increase more than revenues.
- Small hospitals experienced the most unfavorable results, with expenses rising while revenues declined.
- Only medium community hospitals were able to reduce expenses while increasing revenues.
This analysis is based on key operational and financial indicators for nonfederal general acute care hospitals that contributed quarterly data to the Thomson Reuters ActionOI® database. Hospital responses were weighted to make the sample comparable with the national distribution of all hospitals based on hospital class, location, ownership, and profitability. For more information, email David Koepke, PhD, at firstname.lastname@example.org.
Publication Date: Wednesday, June 01, 2011