Just a few months remain in what is shaping up to be one of the worst financial years for hospitals and health systems. As the third quarter came to a close, hospitals, health systems, and physician practices had an unfavorable mix of volumes, revenues, and expenses that continued the year-long trend of negative margins, according to data from Kaufman Hall.

"Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down," said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. "Without a positive margin there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future."

Margins End Q3 in the Red, Continuing a Difficult Year for Hospitals and Physician Practices
The median year-to-date operating margin index for hospitals was -0.1% in September, for a ninth straight month of negative actual operating margins, according to findings in the latest National Hospital Flash Report.

According to the latest Physician Flash Report, the median investment/subsidy per provider full-time equivalent (FTE) reached $227,282 in Q3 2022, slightly up from the second quarter and returning physician practices to a trend of increasing investments/subsidies after a temporary decrease in Q2. Investment/subsidies remain well above where they were at this time last year, with Q3 2021 median investment/subsidies per provider FTE of $190,608.

Revenue Decreases and Sicker Patients Hurt Hospitals' Bottom Lines
The average patient length of stay remained steady from last month, with adjusted patient days and emergency department visits both dropping 3% from August. Operating room minutes decreased 5% from last month, hurting hospital revenues. Adjusted discharges were also down 3%, with a slight increase (1%) in observation days driving the drop in discharges. In total, discharges were down 3% from August.

Physician Practice Volumes Increase in Q3, but Cannot Outpace Expenses
Net patient revenue per provider FTE increased slightly from Q2 to Q3 2022, reaching $389,017 in Q3, driven by increases in net patient revenues in medical specialties and primary care. Expenses outweighed volume and revenue increases, however, with total direct expense per provider at $626,120, up slightly from Q2 and up 9% from Q3 2021.

Hospital Expenses Slow, but not Enough to Outweigh Revenue Decreases

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