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Hospital Financial Trends

The median fiscal and operational performance of U.S. hospitals over the past few years reveals some variation based on hospital type. The major teaching hospitals continue to have the greatest labor costs and net operating revenues, of course, but it is the medium community hospitals that demonstrated the best ability to keep labor costs in check since 2009 and also have shown the strongest net operating revenue gains. It is the small community hospitals, however, that have posted the biggest increases in operating margin figures over that period.


Net operating revenue per adjusted discharge, case-mix adjusted, has been relatively flat for three of the five groups studied. Large and medium community hospitals are the exception, with average annual increases of nearly two and three times, respectively, of the 1.1% achieved by all hospitals studied. While major teaching hospitals have the greatest revenue per discharge, they also have the least  growth, averaging just 0.3% per year since 2009.


Historically, nonoperating income has contributed 2 to 2.5 percentage points to total margin. But investments and charitable contributions have not performed at that level over the past three years. After significant increases in total margin across the board between 2009 and 2010, total margin performance has slipped in all but the large community group. Three of the five hospital groups studied had negative contributions from nonoperating income. Operating income must now make up the shortfall in nonoperating income. Four of the five groups studied show that to be the case. The exception is the major teaching hospital group, which has seen operating margins decline from 5.10% in 2010 to 4.39% in 2012.


As the largest component of cost, labor expense closely correlates to trends in total expense. For all hospitals, labor expense per adjusted discharge (case-mix and area-wage adjusted) has increased at a 0.7% annualized rate. Major teaching hospitals, however, not only have higher overall labor costs per discharge (nearly $2,000 more than all hospitals in 2012), but they also have an average annual rate of labor expense increase of 3.0%, more than three times that of all hospitals.


Total expenses (case-mix and area-wage adjusted) are growing faster at major teaching hospitals than at any other group studied. For all hospitals, expense per discharge has increased at a 1.6% annualized rate. For major teaching hospitals, the annual rate of increase has been nearly twice that, 2.9%. Medium community hospitals actually managed a reduction in expenses between 2011 and 2012, and had the lowest average annual change of just 0.8%.


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