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. 

Hospital, Health System Operating Margins Stabilize at Q2 End

U.S. healthcare organizations ended the second quarter on more stable ground compared to the same time last year, but high costs continue to pressure operations heading into the second half of 2024. Highlights from the June data include: 

• The median, year-to-date health system operating margin held steady at 2.3% for a second consecutive month in June, while the metric decreased slightly to 4.9% for the nation’s hospitals. 
• Growth in labor expenses outpaced non-labor expense increases, representing a reversal from the prior month as hospitals saw some of the year’s first decreases in supply and drugs expenses. 
• Patient volumes were down across most measures in June, with outpatient visits seeing some of the biggest declines, down 4.2% year-over-year and 10.2% month-over-month. 
• Median physician expenses remained high at $1.08 million for the quarter, up 16.3% from the second quarter of 2023. 

Hospital Performance Benchmarks

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

Operating Margins: Hospital and health system operating margins held relatively steady in June, as organizations ended the first half of 2024 on positive ground. The median year-to-date (YTD) hospital operating margin was 4.9% for June, down just slightly from 5.0% in May. For health systems, the median YTD operating margin was unchanged from May to June at 2.3%. 

Looking at changes in margins over time, the median change in hospital operating margin was flat from June 2023 to June 2024, but decreased 0.5 percentage point from May to June 2024. Results varied for hospitals in different regions. Those in the Midwest and Great Plains saw the median year-over-year (YOY) change in operating margin decrease at 3.8 and 2.7 percentage points, respectively. Other regions saw increases ranging from just 0.1 percentage point for hospitals in the Northeast/Mid-Atlantic, to 2.4 percentage points for those in the South. 

At a national level, the median change in hospital operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin decreased just 0.3 percentage point both YOY and month-over-month.  

Hospital Expenses: Labor expenses grew faster than non-labor expenses for June YOY, after the opposite was true the month before. Total labor expense was up 5.2% while total non-labor expense increased 3.3% from June 2023 to June 2024, leading to a 4.8% increase in total expense over the same period. Hospitals saw some easing of expenses month-over-month. Total expense was down 2.8%, total labor expense decreased 3.0%, and total non-labor expense was down 2.7% from May to June 2024. 

Drugs expense was down across both measures, reversing trends in recent months. The metric dropped 5.4% YOY and 10.5% versus May 2024. Supply expense also decreased, down 2% versus June 2023 and 7.2% versus the prior month. It was the first YOY decrease in supply expense and only the second YOY decrease in drugs expense so far in 2024. 

Expenses rose on a volume-adjusted basis. Total expense per adjusted discharge increased 4.2% YOY and 2.3% month-over-month. Labor expense per adjusted discharge was up 4% YOY and 3.1% month-over-month, and non-labor expense per adjusted discharge increased 3.8% versus June 2023 and 2.5% versus May 2024.  

Hospital Revenues: Hospitals saw gross revenues improve compared to prior year but drop versus the prior month. Growth in inpatient revenues once again outpaced outpatient revenue increases. YOY, gross operating revenue rose 3.6%, inpatient revenue was up 4.7%, and outpatient revenue increased 1.8%.  

Month-over-month, gross operating revenue dropped 6.5%, inpatient revenue decreased 5.4%, and outpatient revenue was down 7.6%. By region, YOY inpatient revenue increases ranged from 2.4% for hospitals in the Midwest to 5.7% for those in the South and West. Net patient service revenue (NPSR) per adjusted discharge rose 3% YOY and 0.5% month-over-month for hospitals nationally. 

Patient Volume Benchmarks

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

Patient volumes decreased YOY across most metrics in June, a reversal from the prior month when volumes increased YOY. Outpatient visits and observation visits had the biggest YOY declines at 4.2%, while emergency visits were down 3.2%. Inpatient admissions saw an increase at 1.4% YOY. Compared to two years ago in June 2022, however, inpatient admissions were up 4.9% for the month. 

Decreases were more significant month-over-month. Outpatient visits had the steepest drop at 10.2%, followed by emergency visits at 9.5%. Observation visits decreased 6.3% and inpatient admissions were down 5.5% from May to June 2024. 

YOY changes were mixed across various service lines when looking at combined inpatient and outpatient volumes. Rheumatology had the biggest increase at 5.7% from June 2023 to June 2024, while ear, nose, and throat (ENT) had the biggest decrease with volumes down 7.9% over the same period, according to the latest service line data from May. 

YOY changes in patient volumes also were mixed across 15 common procedure types, with increases across seven and decreases for eight. Outpatient positron emission tomography (PET) again had the biggest YOY increase at 10.3% while inpatient primary knee replacement surgeries had the biggest decrease at 13.3%. 

Patient volumes at children’s hospitals decreased across most measures for a second consecutive month. Outpatient visits had the biggest YOY decline, with volumes down 9.8% from June 2023 to June 2024. Inpatient admissions had the only increase, with volumes up 0.9% YOY. 

Physician Practice Benchmarks 

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

Rising expenses remain a concern for physician practices across the country. The median, total direct expense per physician full-time equivalent (FTE) was $1.08 million for Q2 2024. That represents a 16.3% increase from Q2 2023 and a 2.1% increase from the first quarter of this year. By region, increases in the metric from Q2 2023 to Q2 2024 ranged from 13.6% for practices in the Midwest to 21.3% for those in the West. 

High expenses contributed to ongoing increases in the level of investment needed to support physician practice operations. The median investment per physician FTE was $325,414 for the quarter, up 12.3% from the second quarter of 2023 but down slightly (1.8%) from Q1 2024. 

Physician revenues continued to grow. The median net revenue per physician FTE was $750,145 for the second quarter, representing a 5.2% increase from Q1 2024 and an 18.6% jump from the second quarter of last year. Increases in physician productivity contributed to the revenue growth, with physician work relative value units (wRVUs) per FTE rising to 6,554.20 for the quarter, up 1.8% from Q1 2024 and up 10.2% from the second quarter of 2023. 

At the same time, staffing levels continued to decline. Median support staff FTEs per 10,000 wRVUs — a measure of staffing levels and productivity — decreased 1.5% compared to Q1 2024 and 9.1% versus Q2 2023 to 2.93 in Q2 2024.