https://www.axios.com/2024/08/06/hospitals-risk-closing-operating-margins?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

Some of America’s largest hospital systems saw their financials soar in the first half of 2024. And yet, more than 700 facilities across the country still are at risk of closing.

Why it matters: 

It’s a familiar tale of the rich getting richer, as big, mostly for-profit health systems see improved margins while smaller facilities in outlying areas are barely hanging on.

• That could worsen access for some of the most vulnerable Americans — and hasten consolidation in an industry that’s been a magnet for M&A.

The big picture: 

Health systems with big footprints, including large academic medical centers, have weathered the pandemic and economic headwinds and are seeing margins as good or better than before COVID-19.

• Nashville-based industry behemoth HCA Healthcare posted 23% year-over-year profit growth for the quarter, revising its forecast for the rest of the year, projecting it’ll reach as much as $6 billion. It posted a 10% year-over-year increase in revenue.
• King of Prussia, Pennsylvania-based Universal Health Services similarly reported a strong quarter, posting nearly 69% growth on its bottom line over the same period last year while Dallas-based Tenet Healthcare reported a 111% jump in its net income over the same quarter last year.

Yes, but: 

Smaller nonprofit hospitals, especially in rural areas, that made it through the crisis with the help of government aid are paring services like maternity wards and 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.
• Hospitals that once could manage their expenses and the needs of communities are “going to really struggle to invest in what comes next,” he said.

Between the lines: 

The biggest health systems have benefited from less volatility, seeing stabilizing drug prices and more predictable supply chains and labor costs, per a new report from Strata Decision Technology.

• “It’s at least something you can manage to,” Steve Wasson, Strata’s chief data and intelligence officer, told Axios.
• Revenues already were up thanks to renegotiated contracts health systems struck with payers last year, Wasson said.
• There also have been changes on the federal side that boosted Medicare admissions and put some hospitals in line to be reimbursed for billions in underpayments from the 340B drug discount program.

Zoom in: 

It’s all translated to operating margins that are up 17% year-to-date compared with the same time period in 2023, according to the latest Kaufman Hall National Hospital Flash Report.

• Volumes as measured by hospital discharges per day are up 4% year-to-date.

• Expenses per day are also up 6% year to date, including labor (4%), supplies (8%) and drugs (8%), but are far less volatile and thus easier to plan for, said Erik Swanson, senior vice president at Kaufman Hall.

But there’s a growing gulf between the top third of U.S. hospitals, which are seeing outsize growth, and the rest, Swanson said.

Threat level: A new report from the Center for Healthcare Quality and Payment Reform estimated 703 hospitals — or more than one-third of rural hospitals — are at risk of closure, based on Centers for Medicare and Medicaid Services financial information from July. Losses on privately insured patients are the biggest culprit.

• “We’re looking at 50% of rural operating in the red. The situation is very challenging,” Michael Topchik, partner at Chartis Center for Rural Health, told Axios.
• These smaller hospitals may still be there, but there will continue to be a steady erosion of the kinds of services they offer, such as obstetrics, cancer care and general surgery, he said.

What’s next: 

Private equity investment in rural health care is already booming and with it, prospects for service and staffing cuts.

• The South generally has the highest concentration of private equity-owned rural hospitals, often with lower patient satisfaction and fewer full-time staff compared with non-acquired hospitals, according to the Private Equity Stakeholder Project.
• Congress is ramping up oversight of private equity investments in the sector, though most lawmakers are loath to take steps to actually halt deals.