This report highlights the latest trends in financial performance for U.S. hospitals and physician groups, drawn from monthly data from more than 135,000 physicians and over 1,600 hospitals. 

Overview: Rising Patient Demand Drives Performance Gains for U.S. Hospitals 

Many U.S. healthcare organizations had a promising start to the third quarter with gains across revenues, margins, and patient volumes, but larger organizations saw margin declines. Highlights from the July data include:

• Median operating margins for U.S. health systems decreased to 2.1% in July while operating margins for U.S. hospitals rose to 6.5% to start the third quarter.
• Higher patient demand contributed to hospital operating margin gains as outpatient visits jumped 13.2% and inpatient admissions rose 8.2% year-over-year.
• Hospitals saw double-digit growth in non-labor expenses from July 2023 to July 2024, including a 17.3% increase in drugs expense and a 16.4% rise in supply expense following decreases in both metrics the month before. 
• Physician expenses continued to climb, rising to nearly $1.1 million for July annualized, up 17.5% compared to two years ago in 2022. 

Hospital Performance Benchmarks

The latest benchmarks illustrate the interplay of revenues and expenses on historically tight hospital operating margins.

Operating Margins: U.S. hospital operating margins gained ground with the start of the third quarter in July. The median year-to-date (YTD) hospital operating margin rose to 6.5% for the month, up from 4.9% in June. For health systems, however, the median YTD operating margin remained narrow, decreasing to 2.1% compared to 2.3% in June.

Looking at changes in margins over time, the median change in hospital operating margin rose 4.1 percentage points from July 2023 to July 2024 and was nearly flat, up just 0.2 percentage point from June to July 2024. By region, year-over-year (YOY) increases in the median change in operating margin ranged from 2.6 percentage points for hospitals in the Northeast/Mid-Atlantic to 5.3 percentage points for those in the South.  

The median change in hospital operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin for hospitals nationwide was up 3.5 percentage points YOY but flat month-over-month. 

Hospital Expenses: Hospitals continued to contend with sizable expense increases. Non-labor expense increases outpaced labor expense growth for the month. Total non-labor expense jumped 10.8% from July 2023 to July 2024, driven by a 17.3% YOY increase in drugs expense, a 16.4% YOY rise in supply expense, and a 12% YOY increase in purchased services expense. Month-over-month, total non-labor expense rose 2.4%, drugs expense was up 8.8%, and supply expense increased 6.6%. Purchased services expense was nearly flat, decreasing just 0.1% from June to July 2024. 

Total labor expense rose 5.7% YOY and 2.5% month-over-month, while total expense increased 8.2% YOY and 2.5% from June to July 2024. 

Expenses eased after adjusting for patient volumes. Total expense per adjusted discharge was down 0.6% YOY and 1.9% month-over-month and labor expense per adjusted discharge dropped 4.0% YOY and 2.3% month-over-month. Non-labor expense per adjusted discharge was up 1.9% YOY but decreased 2.4% from June to July 2024. 

Hospital Revenues: Hospitals saw double-digit YOY growth in gross revenues in July as patient demand rose. Gross operating revenue jumped 13.9% from July 2023 to July 2024 and 5.9% month-over-month, due in part to 15.9% YOY and 6.9% month-over-month increases in outpatient revenue. By region, YOY increases in gross outpatient revenue ranged from 12.6% for hospitals in the Midwest to 19.5% for those in the Great Plains. 

Inpatient revenue also had sizable increases, rising 9.1% from July 2023 to July 2024 and 5.1% from June to July 2024 for hospitals nationwide. Net patient service revenue (NPSR) per adjusted discharge was up 4.2% YOY but decreased 1.1% month-over-month. 

Patient Volume Benchmarks

Hospital inpatient and outpatient volumes drawn from analysis of more than 10 million patient visits. 

Patient demand was up in July, as patient volumes increased after decreasing across most metrics in June. Outpatient visits had the biggest increases, rising 13.2% YOY and 7.4% month-over-month. Emergency visits and observation visits had minimal increases of 0.4% and 0.9% YOY, and 0.2% and 1.9% month-over-month, respectively. 

Inpatient admissions had significant increases, rising 4.9% from June to July 2024, 8.2% from July 2023 to July 2024, and 12.2% from July 2022 to July 2024. 

Patient volumes decreased across most service lines, according to the latest service line data from June. Breast health had the biggest YOY decrease at 8.7% and ear, nose, and throat (ENT) had the biggest month-over-month decrease at 17%. Volumes increased YOY across five service lines: infectious disease (6.1%), burns and wounds (1.2%), allergy and immunology (0.7%), neurosciences (0.6%), and dermatology (0.1%). 

Patient volumes were down across nearly all measures for 15 common procedure types. Inpatient primary knee replacement surgeries had the biggest YOY decrease at 19.3% while outpatient positron emission tomography (PET) had the only YOY increase, with patient volumes up 3.8%. 

Children’s hospitals saw patient volumes increase in July, after decreasing across most measures for the prior two months. Observation visits had the biggest YOY increase at 12%, followed by outpatient visits at 7.2% and inpatient admissions at 6.2%. Month-over-month increases for the three metrics were 0.6%, 6.6%, and 1.4%, respectively. Emergency visits at children’s hospitals increased 1.6% YOY but decreased 4.6% from June to July 2024. 

Physician Practice Benchmarks 

A look at last month’s key performance indicators from more than 10,000 physician practices.

For physician practices, ongoing expense increases contributed to higher levels of investment needed to support practice operations. The median investment per physician full-time equivalent (FTE) was $337,532 for July annualized, up 11.9% versus 2023 and 18.3% compared to 2022. Physician practices in the South had the biggest increases, with the metric jumping 25.3% compared to 2023 and 36.3% versus 2022.

The median, total direct expense per physician FTE was $1.1 million for July annualized, up 9.8% from 2023 and 17.5% from 2022. By region, increases in the metric versus 2023 ranged from 4.0% for physician practices in the Great Plains to 15% for those in the West. 

The median net revenue per physician FTE was $731,118 for July annualized, up 9.3% from 2023 and 16.6% versus 2022. Higher physician productivity contributed to the revenue increases, with a median physician work relative value units (wRVUs) per FTE of 6,492.24 for the month annualized, up 9.7% versus the previous year. At the same time, staffing levels at physician practices continued to decline. Median support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — were 2.88 for July annualized, down 4.9% compared to 2023.