Hospitals start 2024 on more solid financial ground

This report highlights the latest trends in financial performance for U.S. hospitals and physician groups, drawn from monthly data from more than 135,000 physicians and over 1,300 hospitals.  

The nation’s hospitals had a strong start to 2024 with gains in operating margins and revenues despite persistent expense increases. Highlights from the January data include: 

  • The median hospital operating margin was 5.2% in January, representing a solid start to 2024 as many hospitals saw revenue gains outpace expense increases, but a decline in days cash on hand suggests ongoing financial uncertainties. 
  • Hospital drug and supply expenses had double-digit increases from January 2023 to January 2024 as hospitals continue to contend with the impacts of inflation.  
  • Outpatient demand remained on the rise, with outpatient revenue up nearly 11% year-over-year. 
  • Per-physician expenses hovered above $1 million to start the new year, driving up the level of investment needed to support practice operations. 


Note: Figures represent median year-over-year change for Jan. 2024 versus Jan. 2023 for hospitals and Nov. 2023 - Jan. 2024 annualized versus 2023 for physician data.   


Hospital operating margin benchmarks  

Latest benchmarks illustrate the interplay of revenues and expenses on historically tight hospital operating margins

Hospital operating margins took a healthy step in January as revenue growth outpaced expense increases to start 2024. The median year-to-date operating margin was 5.2% in January.

While this is welcome news for hospitals, it should be considered in the appropriate context. As demonstrated by the monthly operating margin bars shown here in the lighter blue, hospitals experience a fair amount of fluctuation in actual operating margins from month to month. This report historically focuses on year-to-date operating margins to best reflect the long-term financial position of hospitals and to reduce the “noise” of monthly variations. The sizable increase in the year-to-date bar in January 2024 can be attributed in part to the start of a new year with only one month of data in January. As shown in the lighter blue monthly bars, however, it is not an increase compared to the actual median operating margin in December. 

Data from future months will clarify whether the higher operating margin result is temporary, or the start of more stable hospital operating margins. 


Looking at shifts in operating margin over time, the median change in operating margin rose 3.8 percentage points in January versus the same month in 2023. The median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin rose 3.6 percentage points. Month-over-month, however, the median change in operating margin was down 0.8 percentage point while operating EBITDA margin decreased 0.9 percentage point. 

For further perspective on organizations’ financial health, cash reserves — measured as median days cash on hand — were down 3.1% year-over-year in January and down 27.4% for the month compared to January 2022. Health systems rely on such reserves as a safety net in case of emergencies, such as natural disasters or mass casualty events. The decline in these crucial funds illustrates ongoing financial instability for hospitals even as operating margins improve. 

Hospital expense benchmarks 

Monthly analysis examines fluctuations in average hospital expense metrics nationwide 

The operating margin increases came despite continued growth in hospital expenses, particularly in the areas of drugs and supplies. Hospitals saw a 10.7% increase in supply expense and a 13% jump in drugs expense from January 2023 to January 2024, contributing to a 7% increase in total non-labor expense. Total labor expense rose 3.6% and total expense was up 5.6% over the same period. Month-over-month, total expense rose 2.5%, total labor expense increased 3.4%, and total non-labor expense rose 2.1%. 

Hospitals also saw increases in non-labor expenses after adjusting for patient volumes. For January 2024 versus the first month of 2023, non-labor expense per adjusted discharge rose 1.4% due in part to a 6.9% rise in supply expense per adjusted discharge and a 9.9% increase in drug expense per adjusted discharge. Other adjusted expense metrics decreased year-over-year, with total expense per adjusted discharge down 1.8% and labor expense per adjusted discharge down 3.4%. 

Hospital volume and revenue benchmarks  

Monthly hospital volume and revenue metrics reveal underlying trends in patient demand

Patient volumes continued to rise across most metrics to start 2024. Adjusted discharges increased 5.8% and adjusted patient days rose 2.7% year-over-year. Emergency department (ED) visits were up 5.2% while operating room minutes rose 3.3% over the same period.  

Average length of stay decreased 2.7% for January 2024 versus January 2023. Observation days as a percent of patient days were essentially flat, decreasing just 0.6% for the month — indicating minimal change in the amount of time patients are being held in observation status. For January 2024 versus December 2023, adjusted discharges decreased -0.5%, adjusted patient days rose 2.2%, ED visits dropped 3.4%, and operating room minutes were up 2.9%. 

Revenues remained on the rise for hospitals nationwide, helping to drive up operating margins. Outpatient revenues again had the biggest year-over-year gain, jumping 10.6% from January 2023 to January 2024. Other revenue metrics also rose significantly for the month, with inpatient revenue increasing 9.6% and gross operating revenue up 10.3% year-over-year. January marked a ninth consecutive month of year-over-year increases for the three revenue metrics.

Physician practice benchmarks  

A look at last month's key performance indicators from more than 10,000 physician practices 

While hospitals had a solid start to 2024, financial performance for the nation’s physician practices was not as strong. Ongoing expense increases continued to create financial pressures. Per-physician expenses hovered above $1 million, with total direct expense per physician full-time equivalent (FTE) of $1,003,166 for November 2023 through January 2024 annualized. That represents an 8% increase over 2023 and a 16.3% jump compared to 2022. 

Higher expenses pushed up the level of investment needed beyond revenues to support physician operations, measured as median investment per physician FTE. The metric was up 9.2% from 2023 and 16.4% compared to 2022, climbing to $308,275 for November 2023 to January 2024 annualized. 

Net revenue per physician FTE also increased, up 6.1% from 2023 to $674,927 for the annualized three-month period. Physician productivity rose over the same period, with work relative value units (RVUs) per FTE up 3.8% from 2023 to 5,970.46, while staffing levels based on productivity were nearly flat, rising just 0.4% from the prior year to a median of 2.85.




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