Kaufman Hall: Labor Costs Frustrate Hospitals, Physician Groups
As Kaufman Hall’s leaders said in a press release posted to the company’s website, “Hospital and health systems’ finances have remained stable in the last 12 months, but high labor costs continue to challenge the bottom line. That is a key finding of Kaufman Hall’s latest National Hospital Flash Report, with data through September, and Physician Flash Report, with data for the third quarter of 2024. Labor expenses from physicians and other providers accounted for the vast majority (84%) of medical groups’ total expenses, according to the Physician Flash Report. The median investment, or subsidy, per employed physician was $304,312, while provider and physician compensation per full-time employee each increased by 3 percent compared to a year earlier,” the report noted.
“Investment/subsidy per physician rose above $300,000 for the first time—a sign that current models of physician employment are not sustainable,” said Matthew Bates, managing director and Physician Enterprise service line leader with Kaufman Hall, upon release of the report. “Revenue is increasing but physicians and providers are working more while generating less revenue. Health systems need to rethink operations to align the costs of provider employment with the current health care environment.”
And, the press release noted, “Hospital financial performance continued to show signs of stabilization in September, according to Kaufman Hall’s analysts. Though most indicators in this month’s National Hospital Flash Report, including volume and operating margin, show a slight decrease from the previous month’s data, performance remained relatively stable overall.
“Two data points to monitor in the months ahead are inpatient revenue and average lengths of stay,” said Erik Swanson, senior vice president and Data and Analytics group leader with Kaufman Hall. “Both metrics increased this month, which indicates that hospitals are treating more high-acuity patients. If this continues, organizations will need to contain expenses.”
The report noted that “Outpatient revenue slightly declined and inpatient revenue increased, further highlighting the shifted balance towards more intensive inpatient care.”
Key takeaways in the report:
1. September data show relative stability. Though most indicators are down this month, performance remained relatively stable overall.
2. Inpatient revenue and average length of stay increased. This indicates that hospitals are treating more high-acuity patients, which results in a decline in volume and an increase in expenses.
3. Expenses, with the exception of labor, are still high compared to 2021-2023. Contract labor rates and utilization have decreased, but the overall labor market is still tight.
The full report can be accessed here.
