Though their margins have largely remained level, hospitals are starting to get a handle on length of stay and per-patient expense growth as demand for inpatient care remains strong, according to August numbers from Kaufman Hall.
The advisory firm’s most recent monthly report outlined a 4.2% year-to-date operating margin index across its 1,300-hospital sample, on par with July and a hair below the months prior. Its monthly operating margin index for August was 4.3%, an improvement over July’s 3.2%.
Volumes continued their upward push, with daily discharges and adjusted discharges rising 1% and 2%, respectively, over July and 2% apiece year over year. Emergency department visits per day remained flat month over month and year over year, while operating room minutes per day matched July but are down 3% from August 2023.
The standout for Kaufman Hall was hospitals’ average length of stay, which dropped 2% from July and is 1% lower than the same time last year.
“Patients are spending less time in the hospital and are requiring less intensive care,” said Erik Swanson, senior vice president and data and analytics group leader with Kaufman Hall. “High-performing hospitals are also making strides in streamlining their patient discharge process for more efficient care transitions.”
The upside of that efficiency is checked expenses, according to the report.
Hospitals’ total daily expenses increased 1% month over month and were 7% higher than August 2023. However, on a per adjusted discharge basis, total expenses dipped by 2% from July and rose just 5% from the prior year. Labor expenses benefited in particular, dropping 2% month over month per adjusted discharge, while nonlabor expenses dipped by 1% per adjusted discharge.
On the other hand, revenue increases were also muted across the sector. Net operating revenue per day rose 1% month over month—largely thanks to outpatient revenue gains. Net patient service revenue per adjusted discharge fell by 2% month over month while net patient service revenue per adjusted patient day remained flat.
The matching volume-adjusted declines in revenues and expenses kept operations “relatively stable … despite higher patient volume,” Kaufman Hall wrote.
Bankruptcy fuels busy quarter for M&A
A concurrent report from the firm breaking down hospital merger and acquisition activity showed a spike in deal announcements during 2024’s third quarter—largely due to the ongoing bankruptcy proceedings for Steward Health Care.
Twenty-seven transactions were announced from July through September, marking the busiest third quarter by volume since 2017. Total transacted revenue (measured by annual revenue of the sellers) was $13.3 billion, a new high across the firm’s eight years of analysis, but a $492 million average transaction size was more in line with prior years.
Driving the activity were 11 deals for Steward hospitals, one of which was a “megamerger” of more than $1 billion revenue across eight hospitals for which Health Care Systems of America will assume operations.
Other standout 10-figure revenue deals during the quarter included Orlando Health’s acquisition of Brookwood Baptist Health from Tenet, Prime Healthcare’s plans to acquire eight Ascension hospitals (while closing a ninth) and the merger of Sanford Health and Marshfield Clinic Health System.
For Kaufman Hall, the dealmaking underscored the divide between different markets’ financial fortunes. Whereas some of Steward’s hospitals found new partners in regional nonprofits eyeing growth, others were shut down or are being propped up on an interim basis by Steward’s old landlord Medical Properties Trust. The firm also pointed to deals involving Prospect Medical Holdings and HCA Healthcare that were propelled by operating difficulties.
Meanwhile, other deals announced during the quarter are continuing the strategic trends Kaufman Hall called out during previous quarters: realignment of hospital portfolios to focus on core markets and regional systems’ expansions into new markets.
“While the increasing number of transactions in Q3 2024 is getting us back to a normal level of activity, we are observing various challenges and opportunities in the market,” said Anu Singh, managing director and mergers and acquisitions practice leader with Kaufman Hall. “The motivations for entering into transactions and partnerships vary. As we are seeing the number of strategic transactions accelerate, we are also seeing some organizations that face financial challenges are struggling to find a partner.”
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