Hospitals’ financial performance slipped in July as outpatient activity cooled down and operating margins fell compared to the prior month, according to data released this week by Kaufman Hall.
The consulting firm analyzed data from 1,300 hospitals across the country and found that hospitals’ year-to-date operating margins were 1.4% in July — down from 2.2% across May and June.
The report showed that bad debt and charity care rose by 14% compared to last year, a sign that payer mix erosion is continuing to squeeze providers’ bottom lines.
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Observation days also declined, even as discharges increased, which Kaufman Hall said could prompt hospitals to retool how they classify and document patients.
Much of the margin decline was due to the seasonality of elective surgeries, with the report noting that operating room minutes decreased alongside operating margins in July. Historically, patients schedule elective procedures like joint replacements and hernia repairs less frequently in the summer months.
As more care shifts to outpatient settings, the report also pointed out that hospitals may become increasingly exposed to swings in outpatient volume — which could complicate financial forecasting for hospitals that have leaned on outpatient growth as a margin stabilizer in recent years.
Overall, the report characterized the July dip as a reminder that outpatient dependence can have dual effects — boosting margins when volume is strong, but also causing hospitals to feel the pinch faster when volume levels aren’t as high.
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The report’s findings suggest hospitals may need to brace for more month-to-month volatility as outpatient care becomes a larger share of their business. What has been a stabilizing trend in recent years can also introduce a new layer of unpredictability into hospitals’ financial planning, according to Kaufman Hall.
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