Exclusive: Recent Increases in Hospital Revenues — A Blip or a Trend?

Three strategies will be key to sustained growth, experts say

By Tami Kamin Meyer

Hospital revenues are finally inching back into the black, according to a June 2023 report issued by Kaufman Hall. But the news is not rosy for every health care facility, cautions Jim Porter, a consultant with ToneyKorf Partners.

“Those with a balance sheet and resources are doing well but those without, aren’t,” says Porter.

While the report notes hospitals have generated higher revenues since May 2023, operating margins are not following suit. Instead, margins continue to remain far below historical norms.

Are hospital revenue increases a blip or a trend?

While the numbers paint one picture, experts offer differing views about whether the increases will be long-term or are merely a blip. Porter says it’s simply too early to tell.

“Margins are so thin that we don’t have a solid trend of growth yet,” he says. For example, hospital discharges rose by just 1% from April to May 2023. That is not enough data upon which to form an opinion.

It’s no secret hospital revenues suffered due to COVID. That reality “artificially depressed revenues,” says Kelly Arduino, a healthcare industry leader and a principal at Wipfli, a national accounting firm. Many patients deferred their healthcare needs during the pandemic. But, coinciding with COVID’s lessening grip on Americans came a “floodgate of people needing healthcare,” says Arduino.

The problem, then, is not demand.

Instead, it is the ability of the healthcare system to treat the medical care needs of Americans.

“Revenues are normal if demand for care continues, especially as our population ages. But the limiting factor now is access to a qualified labor force to provide care,” Arduino says.

If hospitals can get their staffing needs resolved, revenue increases will likely become the norm rather than an anomaly, she says.

Keeping the good times rolling

There are steps hospital systems can take to support their efforts at increasing revenues.

According to Arduino, “growth may come from newly negotiated insurance rates.”

She notes that healthcare’s employment woes are causing many medical facilities to “look at their labor expenses. (They are) doing the math and realizing they aren’t making money from patients. So they are seeking an increase in reimbursement from insurance companies and Medicare/Medicaid” to help offset those staggering costs.

“We have not seen this level of disruption of the (healthcare) business model in 30 years, which is when the method for reimbursing hospitals from insurance companies and Medicare/Medicaid changed,” says Arduino.

As Americans regain a sense of safety, post-COVID, they are slowly returning to their doctors, Porter says. Because of that, certain medical specialties and elective surgeries are seeing an uptick in business.

For example, the heightened popularity of working from home since the pandemic has increased the popularity of cosmetic surgery. “People want to look good on screen,” says Porter.

Meanwhile, the growth of the orthopedic industry continues, too. So much so that many orthopedists around the country are developing ambulatory surgery centers, he says. “They’re quicker and are more efficient (than hospitals).” Still, they must partner with a hospital for emergencies.

An aging American population is also responsible for the uptick in the need for orthopedic care. “Because older people are more active than they used to be, more injuries occur,” Porter says.

Gastroenterology is another area where the medical field could enjoy increased revenues. However, because fewer medical professionals are practicing GI medicine, patients are finding it challenging to schedule endoscopies and colonoscopies.

Cancer and cardiology are two more medical specialties where revenues are up.

As with orthopedic medicine, changes in the delivery of care, oral versus intravenous treatment, propels cancer revenues, says Porter.

“As a nation, we continue to have health problems and cardiology has seen an uptick in volume,” he adds.

When an increase in revenue is truly an increase in revenue

Porter says because hospital revenues reached such historical lows during the pandemic, recent positive news about slight revenue increases “feel a bit skewed. The headlines may be misleading. We may be getting back to pre-COVID levels.”

For fundamental changes that can lead to sustained revenue growth, the healthcare industry needs to embrace three strategies in concert with one another, says Arduino:

  • Technology
  • Automation
  • Digitalization

Hospitals “have been thinking about (those three strategies) but now they must implement them” to remain viable, she says.

“We’ve known about the nursing shortage for at least 20 years, although COVID really accelerated it,” she says. So, to free up funds, hospitals started laying off middle-management employees, like those who mop floors or input data into patient medical bills. While those terminations gave temporary relief, those tasks must still get done, she says.

“People throw those three words around but there needs to be some process or machine to do the work when we can’t get anyone to do the work, anyway,” says Arduino.

She argues the current business model for hospital care is not financially viable if “revenues remain relatively static and labor costs” continue to skyrocket.

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