Republished with full copyright permissions from The San Francisco Press.

A recently released report from Kaufman Hall has shed light on the financial landscape of hospitals, revealing a mild downturn in operating margins and patient volumes during the month of March. The report indicates that despite a relatively strong start to the year, hospitals may face imminent financial challenges in the foreseeable future.

The operating margin index for hospitals closed out March at 3.4%, which reflects a slight decrease from the previous month’s 3.6%. However, it is important to note that the year-to-date operating margin index of 3.9% for March still surpasses the 1.9% index noted at the end of 2023.

Erik Swanson, senior vice president at Kaufman Hall, expressed uncertainty regarding the potential duration of the recent declines in hospitals’ margins and volumes. The report suggests that the coming months will provide valuable insights into the longer-term financial trends that hospitals are likely to encounter.

One notable revelation from the report is the 5% decrease in hospitals’ outpatient revenue in March, largely attributed to the increasingly competitive landscape of outpatient care. As hospitals seek to offer more outpatient care options, they find themselves facing heightened competition from peer organizations, retailers, and nontraditional providers, complicating revenue streams in this segment.

Additionally, the report highlighted hospitals’ challenges in managing incurred bad debt and charity, as well as an increase in days in accounts receivable. Swanson connected the rise in accounts receivable balances to the recent Change Healthcare cyberattack, while also indicating that mounting bad debt may be indicative of broader shifts in payer mix away from commercial payers.

To navigate the declining revenue and volume trends, the report recommended that hospitals explore growth opportunities in key areas such as ambulatory surgery centers, pharmacies, and imaging services. Swanson also emphasized the potential benefits of establishing a retail presence, tailored to each hospital’s unique circumstances.