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March 22, 2023
David Burda
Economics Outcomes System Dynamics
4-Minute 4sight Blogs

Hospitals Posted Record Profit Margins?

To answer the question in the headline, which I haven’t seen anywhere yet, is yes. Yes they did.

That’s according to the latest annual March report to Congress from the Medicare Payment Advisory Commission, or MedPAC.

MedPAC’s annual march report is chock full of reality checks on lobbying rhetoric from the healthcare industry’s incumbent special-interest groups. When it comes out, I’m guessing that industry lobbyists hope that no one has the time to flip through the nearly 500-page report looking for the truth.

I’m self-employed, so I do, and I did.

MedPAC said hospitals’ inpatient all-payer operating profit margin was 8.7 percent in 2021. That’s up from 5.3 percent in 2020 and a record high, according to the report. Well, it’s only a record high thanks to federal COVID relief funds, you say? If you take away federal COVID relief funds, the margin does dip to 7.2 percent. But the 7.2 percent is still a record high.

“The federal relief funds that hospitals received in 2021 more than offset the additional coronavirus pandemic-related expenses that were not covered by the higher patient revenues associated with COVID-19,” the report said. “Rather, the increase in the operating margin of over 3 percentage points resulted from hospitals’ operating revenues growing more than their costs: Operating revenue increased over 11 percent, while costs increased by only about 7 percent.”

MedPAC said it. I didn’t. Hospitals took in a lot more money than they paid out, and like any business with that balance sheet in any industry, were more profitable than ever before.

Here are more fun hospital profit margin facts from the report:

  • For-profit hospitals posted a 15.1 percent inpatient all-payer operating profit margin in 2021 (13.9 percent without COVID relief funds).
  • Not-for-profit hospitals posted a 8.2 percent inpatient all-payer operating profit margin in 2021 (6.8 percent without COVID relief funds).
  • Rural hospitals in “micropolitan” markets (counties with a cluster of 10,000 to 50,000 people) posted a 9.2 percent inpatient all-payer operating profit margin in 2021 (6.8 percent without COVID relief funds.
  • Rural hospitals in non-micropolitan counties posted a 7.6 percent inpatient all-payer operating profit margin in 2021 (3.0 percent without COVID relief funds).

With or without extra COVID cash from the feds, hospitals of all types made a lot of money in the year following the pandemic.

Hospital lobbyists will tell us things were different in 2022 and so far in 2023. Maybe. But I’ll look at next year’s March report from MedPAC to find out.

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Thanks for reading.

About the Author

David Burda

David Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers — patients — are king. If you do what’s right for patients, good business results will follow.

Dave’s personnel experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 40 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 40 years and his three children, none of whom want to be journalists or lobster fishermen.

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