News: Nonprofit hospital margins improve, Medicaid cuts threaten progress, report says

Nonprofit hospitals’ (NFP) operating margins have improved from -0.3% to +1.2% from calendar year (CY) 2023 to CY 2024; however, a slew of cuts to Medicaid threaten this financial progress, according to HealthLeaders.

A new report released by FitchRatings details developments and offers predictions regarding the financial saliency of NFPs, among them:

• While median operating margins have improved during the CY 2023–2024 period, these figures are “well below pre-pandemic levels,” even for the best performing hospitals.
• Workforce challenges—in particular, median base salary and wage expenses—have increased at a rate 6.9% year over year, further contributing to operating margin difficulties.
• The use of contract labor, in terms of a percentage of total operating revenues, has fallen from 55.4% (CY2 023) to 54.5% (CY 2024), alleviating some operating costs.
• Early reporting hospitals have experienced strong revenue growth, charting a median increase of +9.1% from CY 2023 to CY 2024.

Moreover, while median Medicaid reimbursement measured in terms of gross patient revenue has remained “relatively steady, ”decreasing from 16.6% (CY 2023) to 16.2% (CY 2024), median self-pay reimbursement has dropped from 2% to 1.8%.

Despite these developments, further anticipated cuts to Medicaid have threatened to reverse this slow progress. As noted in HealthLeaders, “[p]roviders with more exposure to self-pay and Medicaid reimbursement have less capability of bringing in revenue from other payer sources.”

As a result, the report placed great emphasis on NFPs further maintaining “robust liquidity” in the years ahead, as this  “liquidity cushion is crucial for weathering ongoing headwinds and macro uncertainties, including potential changes to Medicaid affecting enrollment or reimbursement levels.”

Editor’s note: To read the HealthLeaders coverage, click here. To read the FitchRatings report, click here.