Hospital margins stay strong for the first two months of 2024

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 1,900 hospitals.  

Hospital finances improved in the second month of 2024, as organizations nationwide experienced ongoing revenue gains even with high expenses. Highlights from the February data include:  

  • The median, year-to-date hospital operating margin was 4.6% in February, as hospital finances continue to show signs of greater stability with the start of the new year.  
  • Days cash on hand dropped more than 25% compared to two years ago, reflecting a need for hospitals to rebuild these critical cash reserves to ensure greater stability for the long term.
  • Double-digit increases in supply and drug expenses persisted, demonstrating ongoing challenges as the industry wrangles with the effects of inflation.
  • Per-physician expenses remained above $1 million again in February, contributing to an increase in the level of investment needed to support practice operations. 

Note: Figures represent median year-over-year change for Feb. 2024 versus Feb. 2023 for hospitals and Dec. 2023 - Feb. 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 remained on firm ground in February, as organizations continued to see a solid start to 2024. The median year-to-date (YTD) operating margin was 4.6%* for the month. Recent margin performance can be attributed in part to several consecutive months of strong revenue performance, including double-digit gross revenue increases in February versus the same period in 2023. 

The median change in operating margin increased 4.8 percentage points year-over-year (YOY) in February, while the median change in operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin rose 4.1 percentage points. Hospitals continued to see unsteady month-over-month performance, however. Compared to January 2024, the median change in operating margin decreased 0.6 percentage point while operating EBITDA margin was down 0.4 percentage point.


Hospitals also had poor performance relative to cash reserves. The median change in days cash on hand increased just 0.6% from February 2023 to February 2024 for the average health system. Compared to February 2022, the metric dropped 25.4%. The steep decrease versus two years ago highlights continued financial uncertainties for the sector, as having lower cash reserves means hospitals are less prepared for unexpected emergencies or sudden market changes, such as natural disasters or mass casualty events.

*Note: The February 2024 YTD operating margin was revised from a previous version of this report due to changes in the dataset and an adjustment calculation that was made to the current figure to account for differences in health system ownership structures that affect costs.

Hospital expense benchmarks 

Monthly analysis examines fluctuations in average hospital expense metrics nationwide 

Growth in overall hospital expenses persisted in the second month of 2024. Supply and drug expenses again had the biggest increases versus the prior year. Supply expense rose 12.5% and drugs expense was up 11.9% from February 2023 to February 2024, contributing to an 8.8% YOY increase in total non-labor expense. Total labor expense increased 7.1% and total expense was up 7.8% YOY. Overall hospital expenses eased somewhat month-over-month. Compared to January 2024, total expense was down 3.8%, total labor expense decreased 6.0%, and total non-labor expense was down 2.2%.  

Most expenses also decreased after being adjusted for patient volumes. Total expense per adjusted discharge was down 2.5% YOY and 3.4% month-over-month, while labor expense per adjusted discharge decreased 4.1% YOY and 5.8% versus January 2024. Non-labor expense per adjusted discharge was down 1.7% YOY and 1.4% month-over-month, despite YOY increases in supply expense per adjusted discharge and drug expense per adjusted discharge of 2.6% and 1.2%, respectively.

Hospital volume and revenue benchmarks  

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

Hospitals saw YOY increases in patient volumes across most metrics for February but decreases month-over-month. Adjusted discharges jumped 11% compared to February 2023, but were down 1.1% versus January 2024. Adjusted patient days rose 7.4% YOY and dropped 5.3% month-over-month. Emergency department visits rose 9.0% YOY and decreased 5.5% versus the prior month, while operating room minutes rose 5.7% YOY and were down 3.3% month-over-month. 

Average length of stay decreased across both measures, down 3.2% YOY and 4.9% versus January 2024, suggesting a decline in the complexity of patient cases or improvements in moving patients out of inpatient and on to the next stage of care. There again was little change in the amount of time patients were being held in observation status, with observation days as a percent of patient days decreasing just 0.6% YOY and increasing just 0.3% month-over-month. 

Hospitals saw a 10th consecutive month of YOY increases in gross revenues. Gross operating revenue rose 14.3%, inpatient revenue increased 12.5%, and outpatient revenue was up 15.6% YOY. Net patient service revenue (NPSR) per adjusted patient discharge also rose 2.8% YOY. Most revenue metrics decreased month-over-month, however. Compared to January 2024, gross operating revenue was down 4.1%, inpatient revenue dropped 8.9%, outpatient revenue decreased 1%, and NPSR per adjusted discharge was down 3.9%.

Physician practice benchmarks  

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

Physician expenses remained on the rise. Total direct expense per physician full-time equivalent (FTE) held above $1 million again in February. The metric was $1.1 million for December 2023 through February 2024 annualized, representing a 12.6% increase from 2023 and a 21.5% rise compared to 2022. 

As a result, physician practices continued to see increases in the amount of investment needed to offset insufficient physician revenues and maintain practice operations. The median investment per physician FTE for December 2023 to February 2024 annualized was $333,523, up 14.3% versus 2023 and 19.4% from 2022. 

Physician productivity increased, reaching 6,213.40 physician work relative value units (wRVUs) per FTE for the annualized period, up 6% from 2023 and 10.6% from 2022. Net revenue per physician FTE also increased, up 9.7% from 2023 and 19% from 2022 to a median of $729,760 for December 2023 through February 2024 annualized. 





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