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March 27, 2024
David Burda
Economics Outcomes System Dynamics

My, How the Margins Have Fallen

About this time last year, I wrote about record profit margins that hospitals posted in 2021, according to data from the Medicare Payment Advisory Commission’s (MedPAC) annual March report to Congress. At the end of that blog post, I said hospital lobbyists will tell us that things were different in 2022, and that I’d look at this year’s MedPAC report to find out.

I did, and the hospital lobbyists were right. Hospital profitability crashed in 2022, according to MedPAC’s March 2024 report.

Here’s the ugly financial news:

  • Hospitals’ all-payer operating profit margin plummeted to 2.7% in 2022 from a record 8.8% in 2021. That included about $9 billion in COVID-19 relief funds in 2022 compared with $18 billion in COVID-19 relief funds in 2021.
  • Excluding those relief funds, hospitals’ all-payer operating profit margin dropped to 1.9% in 2022 from a record 7.3% in 2021.
  • If you were a “relatively efficient” hospital, your median all-payer operating profit margin with relief funds was 4% in 2022. That’s compared with an 11% all-payer total profit margin in 2021.
  • Hospitals’ Medicare-only profit margin fell to -11.6% in 2022 from -6.1% in 2021 with relief funds, and to -12.7% from -8.1% without relief funds.

MedPAC attributed the drop in hospital profitability to the reason all businesses in any industry suffer lower profits: Their expenses rose faster than their revenues.

“These low all-payer and FFS Medicare margins were largely driven by higher-than-expected input price inflation in 2022,” MedPAC said.

Some positive clinical news offset the bleak financial news in 2022 compared with 2021:

  • Inpatient stays per 1,000 Medicare beneficiaries dropped to 202 from 208.
  • The risk-adjusted inpatient mortality rate for a Medicare beneficiary dropped to 8.1% from 8.6%.
  • The risk-adjusted 30-day readmission rate for a Medicare beneficiary slipped to 14.7% from 14.8%.

Strange how that worked in 2022. Better outcomes with less profit. Go figure.

Thanks for reading.

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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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