Healthcare News & Insights

How are hospital profits being affected by industry changes?

A lot of changes in the healthcare industry are impacting how providers help patients. But even though their quality of care might be rising rapidly, hospitals can expect their profits to grow slowly — if at all. 

181384235Insurers and federal agencies have been pushing healthcare providers into the realm of value-based reimbursement and patient-centered care. It makes sense that there might be some downsides to the transition to these new systems. And now facilities are seeing that backlash in their bank accounts.

Trend of dwindling profits

An analysis of earning reports from 200 hospitals and health systems shows only a few facilities are operating on positive margins, according to Modern Healthcare.

Despite the national economy getting stronger and leading to more outside investments, most facilities are operating with slim and dwindling profits.

The number of hospitals operating on negative margins was up to 14.5% from 9.5% in 2012, and the average operating margin was down to 3.1% from 3.6% last year. About 61.3% of hospitals surveyed saw their profit margins go down over the last year.

This could be partly due to lower patient volume and thus lower revenue from patient care. The push from Medicare and other payors to cut expenses from unneeded inpatient services and readmissions has also cut revenue at many hospitals.

This profit trend is especially disturbing since in order to keep up with new pay models and care standards, hospital leaders will have to continue investing in new technologies and care coordination strategies. And as if that weren’t enough, there may be even more revenue lost when the industry makes the switch to ICD-10 codes. As a different Modern Healthcare article shows, the ICD-10 transition may come with a lot of confusion as billers and coders adjust to using the new system.

Although these kinds of investments will pay off for facilities in the long run, the growth may be slow in coming. And in the meantime, hospitals will need to find ways to compensate.

Turning the trend around

One way hospitals have tried to compensate for the decreasing margins is to cut costs in different areas. But with patient volume already declining, cost cutting may not be the best long-term strategy. Instead, facilities will have to find other ways to improve their finances, like focusing on keeping their patients healthy through their investments.

They’ll also have to look for ways to bring in non-operating revenue to compensate for the decreasing number of inpatient services provided. Many hospitals are trying to improve their bottom lines through investment portfolios, endowments and donations.

Hospitals can also help themselves handle these lean times by creating savings cushions for unexpected expenses or future investments.

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