At the same time, hospitals saw their gross revenues improve in 2024 compared to 2023. YOY, gross operating revenue increased by 3.6%, inpatient revenue increased by 4.7%, and outpatient revenue increased by 1.8%.

However, there were some decreases in revenue month-over-month. Compared to May, gross operating revenue declined by 6.5%, inpatient revenue declined by 5.4%, and outpatient revenue declined by 7.6% in June.

Between June 2023 and June 2024, hospitals saw their expenses increase by 4.8%, with total labor expense up 5.2% and total non-labor expense up 3.3%. However, expenses eased slightly from May to June, with total expense down 2.8%. Total labor expense also decreased by 3%, while total non-labor expense decreased by 2.7%.

Separately, a report from S&P Global Ratings found that American nonprofit hospitals and health systems' median days of cash on hand hit a 10-year low in 2023. Cash flow didn't see much improvement between 2022 and 2023.

According to the report, the healthcare sector is making progress toward financial recovery, but performance metrics remain below financial targets.

Rural hospitals are struggling to stay open

Not all hospitals have seen the same financial improvements since the pandemic. Although larger hospital systems have seen their margins match or exceed those from before the COVID-19 pandemic, smaller nonprofit hospitals are struggling to stay open.

"There are a lot of hospitals that survived, but their balance sheets are so weakened, their margin for error is basically zero at this point," said Mike Eaton, senior vice president of strategy at population health company Navvis.

According to a new report from the Center for Healthcare Quality and Payment Reform (CHQPR), over 700 hospitals, or more than a third of rural hospitals, are currently at risk of closure.

Since the start of 2023, 12 rural hospitals have closed due to severe financial issues, and 28 have eliminated inpatient services to qualify for higher reimbursement under the rural emergency hospital program.

The state with the most hospitals at risk of closure is Texas, with 80 hospitals. Of these hospitals, 30 are at immediate risk of closure. In addition, Kansas has 62 rural hospitals at risk of closure, with 31 at immediate risk. Only five states have no rural hospitals at risk of closure: Delaware, Maryland, New Jersey, Rhode Island, and Utah.

"We're looking at 50% of rural operating in the red. The situation is very challenging," said Michael Topchik, partner at Chartis Center for Rural Health.

According to the report, inadequate payments from private health plans have contributed to rural hospitals' financial difficulties, since patients with private plans make up around half of the services at an average rural hospital when Medicare Advantage (MA) plans are included.

Closures could also lead to significant access issues in medically underserved communities. This could exacerbate social determinants of health and make it harder for patients to seek preventive care or treatment for chronic conditions.

To help rural hospitals, CHQPR recommends health plans reimburse rural hospitals with a standby capacity payment instead of fixed costs for their services. By reimbursing hospitals for standby costs, regardless of services being used, rural facilities would still be able to operate even if fewer patients use their inpatient or ED services.

In addition, Topchik said that higher Medicare and Medicaid reimbursement rates and streamlined care approval processes from MA plans could be beneficial for struggling rural hospitals.

"Things are tough and they're getting tougher," Topchik said. "There is a challenge in rural America with providing equitable access to affordable, high-quality care. It's going to require action to support safety-net hospitals that are under great strain." (Vogel, Healthcare Dive, 8/12; Reed, Axios, 8/6; Devereaux, Modern Healthcare, 8/6; Strata Decision Technology report, accessed 8/14)

The widening gulf between successful and struggling US hospitals 

By Marisa Nives

The mood around hospital finances in 2024 has been one of relief. We've seen stable median margins across much of 2024, a welcome break from the historic lows of 2022. But not all providers are feeling this progress — there are diverging fortunes across key segments of the provider market.  

Let's take a closer look at the chasms emerging beneath the "median" KPIs that are being highlighted in the headlines. 

Understanding the key drivers of margin variation

The median margin is an important signal, but equally important is the spread around that margin — and when we look at this spread, we see a chasm forming between the highest- and lowest-performing hospitals. Our analysis of Strata's year-to-date June margins reveal that the bottom fifth of systems are still performing below -4%, while the top 20% of systems significantly outperform the median at above 17%.   

A major factor in margin variation is geographic location. In most regions, margins have improved beyond 2021 levels. That's not the case in the Great Plains, where margins are 7% lower than they were in 2021. The "new normal" is different even for those who have recovered. The South has seen margins grow by 28% compared to 2021, while the Midwest saw only 14% growth.   

Another interesting divergence is between hospital and health system margins. News coverage typically focuses on the median hospital margin. But this analysis pointed out another key benchmark: median health system margins. While median hospital margins hit 4.9%, health system margins in June landed at 2.3%, just shy of the 3% to 5% margin range considered sustainable. Only 20% of U.S. hospitals are independent, so looking only at hospital margins obscures the performance of a key part of the provider sector.   

The reason health systems are doing worse in aggregate compared to individual hospitals is multifold, but a likely contributor is that health systems often own several outpatient sites. These sites provide lower reimbursement, but until recently, higher volume growth. However, Strata's latest benchmark noted lower outpatient volumes, and simultaneously increased labor expense growth compared to total expense growth.  

While one month does not equate to a trend, I'll continue monitoring those figures, as they are key determinants of whether health systems will maintain recovery momentum or face continued margin compression ahead.   

Margin variations pose a threat to health system sustainability

These margin variations aren't just an interesting trend. The real-world impact is the exacerbation of the haves and have nots in healthcare. This implication is especially evident in rural settings. Alongside headlines of hospital recovery are recent findings that a third of rural hospitals are at risk of closure, and half of rural systems are operating in the red.  

Rural hospital closures place increased pressure on an already stretched thin rural healthcare system — and their impact extends beyond their immediate communities. As rural hospitals close or cut services, other local and regional providers are tasked with closing the gaps they leave, altering the payer and case mix and pressuring capacity at surrounding hospitals.   

My key takeaway is this: Beneath margin recovery headlines, you'll find continued threats to health system sustainability. Unequal recovery is a symptom of a larger problem — the growth avenues of the past are harder and less accessible than ever.  

To learn more about how health systems are pivoting to achieve sustainability in this new world, join us in Phoenix for our Pivots for a Sustainable Future Summit, and check out these resources:

• 3 ways systems are meeting surgical demand and margin pressures
• 20 ways health systems can control costs

(Definitive Healthcare report, 4/17/2023; Swanson, Kaufman Hall, 8/5)