Outpatient revenue growth in the past year is providing some reason for optimism.
Even with high costs plaguing healthcare organizations, hospital margins are trending in a positive direction.
The median year-to-date operating margin for hospitals nationwide creeped up to 5.1% in September after hitting 4.9% in August and 4.8% in July, representing a 2.1% increase year over year, according to data from Strata.
Health systems, however, saw operating margins fall for a third consecutive month to 1.6% in September, down from 1.9% in August, as well as from 12-month high of 2.3% in May and June.
Organizations are contending with swelling labor and non-labor costs as total expense was up 5.9% from September 2023 to September 2024. On the non-labor side, costs jumped 6.3% year over year due to increases in purchased services expense (8.8%), supply expense (8.6%), and drugs expense (6.8%). Labor costs, meanwhile, grew 5.2%.
Compared to August, total expenses in September decreased 2.2%, including a downturn of 2.3% for labor costs and a 2% decline for non-labor costs.
Revenue also slumped month over month, with gross operating revenue decreasing 4.2%, outpatient revenue falling 4.8%, and inpatient revenue shrinking 3.2%. Nonetheless, revenue has significantly improved year over year is up 8.7%, driven largely by a 9.1% jump in outpatient revenue, which outpaced the growth of inpatient revenue at 6.4%.
Patient volume followed a similar pattern, with September showing a month over month drop-off but a year over year jump in outpatient visits and inpatient admissions. Outpatient visits showed the biggest improvement, increasing 3.8% since September 2023, while inpatient admissions rose 2.7%.
Many providers are upping their investment in outpatient services to meet higher demand without incurring the same expenses associated with inpatient settings.
Community Health Systems is a recent example as the hospital operator signed a definitive agreement to acquire 10 urgent care centers in Arizona from Carbon Health.
CEO Terry Shaw shares what strategies AdventHealth has had success with for driving innovation.
Scaling innovation at a health system requires more than just buy-in at the highest levels—it demands a culture of striving for change.
Establishing that culture should come from the top and CEOs must set the tone if they want to get every member of the organization to have a forward-thinking mindset.
“Once that's ingrained into your culture that you're a learning culture, people like it, they like being a part of it, and they like being a part of something that's bigger than themselves,” AdventHealth CEO Terry Shaw told HealthLeaders. “They just really need to know what it is and how they fit in.”
Here are three ways Shaw has built a culture of innovation at AdventHealth and how other CEOs can do the same.
The home-based care business is seeing increased interest and could be ripe for more activity going forward.
Elevance Health is committing to growing its home-based care with its newest acquisition.
The company’s health services subsidiary, Carelon, is planning to purchase value-based home health company CareBridge, allowing Elevance to join its insurer competitors in the home care space.
Elevance CEO Gail Boudreaux characterized CareBridge to investors on a recent earnings call as a “value-based manager of home and community-based services for chronic and complex members that will serve as the foundation for Carelon home health business.”
The deal for the Nashville-based company is reportedly worth $2.7 billion, according to Nashville Business Journal.
Founded in 2019 by Brad Smith, the former director for Medicare and Medication Innovation and co-founder and CEO of Aspire Health, and former senator Bill First, CareBridge operates in 17 states and Washington, D.C., and served over 115,000 patients in 2023. It generates more than $4 billion annually, according to a report by Forbes.
Boudreaux said the acquisition “gives us home-based care and another pillar inside of our growth strategy for Carelon services where we can take significantly more pass-through of the type of medical expense we're managing inside of Carelon.”
In Elevance’s third quarter earnings, Carelon reported total operating revenue of $13.8 billion for a 15% increase year over year, contributing to the insurer’s $1 billion in net income.
Elevance executive vice president and CFO Mark Kaye noted that the company will continue to scale Carelon, adding to its existing services such as behavioral health and pharmacy benefit management.
“Carelon Services is expanding its capabilities to manage a growing proportion of healthcare spending, supporting the long-term growth of the business and by extension, the value it creates for health plan customers,” Boudreaux said.
Home health is an area insurers have targeted in recent years and appears ready for more dealmaking.
Last year, UnitedHealth Group’s subsidiary Optum acquired home health and hospice provider LHC Group for $5.4 billion before agreeing to purchase Amedisys for $3.3 billion, which is pending due to regulatory scrutiny.
Humana, meanwhile, acquired Kindred at Home in 2021 before rebranding the provider as CenterWell Home Health in 2022.
Insurers are primed to offer home health services to their Medicare patients amidst a shift to value-based care.
The hospital operator is no stranger to bouncing back from storms and will look to do it once again.
HCA Healthcare is still recovering from the operational and financial devastation recently caused by Hurricanes Helene and Milton.
The back-to-back hurricanes, which hit the Southeast in the span of two weeks, caused HCA to incur a $50 million revenue loss in the third quarter and anticipate a loss of $200 to $300 million for the fourth quarter.
Despite the drain on finances as a result of the hurricanes, HCA managed to rake in $1.3 billion in profit for the quarter, driven by $17.5 billion in revenue.
HCA also reaffirmed its full-year guidance of between $69.8 billion and $71.8 billion, but the company anticipates the final figure to be in the lower half of that range.
Overall, the health system had 29 hospitals in the path of Helene and 34 hospitals in the path of Milton, CFO Mike Marks told investors on an earnings call. All but two hospitals are back to being fully operational, with Asheville, North Carolina-based Mission Hospital and Florida Largo Hospital significantly impacted by Helene and Milton, respectively.
Mission Hospital is expected to be without potable water for several more weeks, which will cost HCA at least $13 million to create a water supply through October, Marks said. Not only will the expenses and lost revenue for the location affect finances for the remainder of the year, but they will bleed into 2025, CEO Sam Hazen told investors.
Florida Largo Hospital, meanwhile, was flooded and is currently closed and under repair for damage to the building's infrastructure. Hazen said HCA is working to reopen the facility in late December, but anticipates that the repair expenses and lost revenue will hurt fourth quarter earnings.
Pointing to HCA's previous experiences with hospitals impacted by hurricanes, Hazen said: "HCA Healthcare has numerous examples from past hurricanes where our hospitals have recovered from major storms and become more productive than pre-storm performance. I believe we can produce similar results with these two hospitals in time as we move beyond the aftereffects of these most recent storms."
HCA has faced similar challenges with hospitals needing significant repairs in the wake of hurricanes, such as Florida Fawcett Hospital. After being damaged by Hurricane Ian 2022, the location was repaired in a way that it was hardened to hurricanes, Hazen recalled.
As a health system operating in regions susceptible to hurricanes, HCA has to be prepared to respond to the natural disasters when they occur.
"We hardened our facilities as much as we possibly can, but [hurricanes] are, in fact, a way of life," Hazen said.
Nevertheless, Hazen reiterated that HCA is in those vulnerable markets for a reason and that the organization has put itself in a position where it can offset some of the unpredictable consequences.
"We believe that our portfolio of communities that we serve are very well-positioned for long-term growth, as we've indicated," he said. "We understand the risks associated with hurricanes and such. That's why we've built the capabilities that we've got and we think we're diversified enough across those communities to deal with that particular risk."
Strategizing for these priorities is a must for leaders of hospitals and health systems to address their biggest pain point.
Rethinking and retooling approaches to the workforce as a hospital CEO right now isn’t just smart, it’s necessary.
The workforce is evolving in several ways, from newer generations becoming a wider base to how the work itself is done, forcing leaders to constantly consider and implement solutions designed to keep employees for the long haul.
Here are three aspects of the workforce CEOs are targeting at next week’s HealthLeaders Workforce Decision Makers Exchange, where hospital executives will come together to share best practices to combat the top threat to their organizations.
Recruiting and retaining younger generations
Regardless of what your organization is trying to achieve, it won’t be possible without the ability to bring in and maintain talent.
The workforce shortage may not be as dire as it was during the height of the pandemic, but it continues to be a thorn in the side of hospitals and is expected to only get worse in the coming years.
To avoid employee turnover, CEOs need to recognize the wants and needs of younger workers, who often place greater value on flexibility and work-life balance.
“Recruit, retain, and advance” is the focus for Crouse Health CEO and HealthLeaders Exchange member Seth Kronenberg, but bringing a worker through that journey looks different now than it did before.
“The linear path of ‘I stay as a bedside nurse for 40 years,’ that's really not where the younger generation is headed,” Kronenberg said. “People want to transfer into different disciplines and bounce around and work in person, work remote. So we want to be able to have those opportunities so that whatever somebody is looking for from a workforce lifestyle, we can provide.”
Meeting those demands can be complex and call for significant changes in how workers are managed, but by offering more options to employees, hospitals can cut down on burnout and seeing their staff walk out the door.
Utilizing the right technology
Another way to improve retention is by unburdening workers through the implementation of appropriate technology.
Choosing the right solution for the right purpose, however, can be a challenge with the number of choices that are currently available. AI is also still in its relative infancy, which means the limitations on its effectiveness, especially on the clinical side, is yet to be fully understood.
Where CEOs like Kronenberg see the immediate value of AI is in supplementing the workforce to relieve staff of administrative, time-consuming tasks.
“There's value in doing non-controversial, non-medical decision-making tasks that are just tasks that we're burdening our clinical teams with,” Kronenberg said. “That's where we're looking to invest while the rest of the stuff gets sorted out. But we we've seen the opportunity to leverage complementary services with AI that's not replacing the doc, but making the docs and the nurse function more efficiently.”
Examples of that include maximizing the electronic medical record, making documentation more efficient, and triaging patient messages.
Filling the gaps around your workforce with technology can result in organizations needing to hire less people to do many of these tasks.
Creating financial ROI
Ultimately, CEOs understand that they must make workforce decisions that will positively impact the bottom line.
One major way leaders are doing that is by pulling back their reliance on contract labor, which was crucial during the pandemic when turnover was high, but has since become too costly as the workforce has stabilized.
Cutting off labor from traveling nurse agencies or locum tenens is only possible though if organizations are keeping their recruitment and retention rates up by offering incentives that will be cheaper long term.
Instilling workforce governance to manage labor resources can also go a long way to ensuring financial health.
Identifying efficiencies starts at the top with leadership but should permeate throughout an organization because it’s the staff on the ground working closest with patients who can provide a much-needed perspective.
“It's a partnership with management and union. It's a partnership with senior leadership and the frontline managers,” Kronenberg said. “But we also believe very strongly in shared governance, so it's those at the bedside who have the best idea of how to create more efficiencies and partnering with them so they know that workforce initiatives are designed to help make their lives both easier and more efficient.”
Are you a CEO or executive leader interested in attending an upcoming event? To inquire about attending the HealthLeaders Exchange event, email us at exchange@healthleadersmedia.com.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at the LinkedIn page.
Connecticut officials have called on the parties to resolve their grievances and finalize the agreement.
Two years after agreeing to a sale of three Connecticut hospitals, Yale New Haven Health and Prospect Medical Holdings continue to be locked in a tug-of-war that is playing out in court and in the media.
Since agreeing to send Manchester Memorial, Rockville General, and Waterbury hospitals to Yale New Haven for $435 million in 2022, the two sides have lobbed lawsuits and criticisms at one another over the conditions of the deal.
Connecticut governor Ned Lamont and comptroller Sean Scanlon have reiterated the importance of the two organizations finding a middle ground to complete the transaction.
"We're in the red zone, getting into the end zone is pretty tough,” Lamont said in a press conference. “We've met with Prospect, Yale separately, met with them together twice, doing everything we could to get this deal done on behalf of the patients. Right now, this dispute lingers on.
“I’m not quite sure we’ll be able to keep them out of the courthouse. So in the meantime, I care deeply about patient safety there, making sure that we monitor that situation closely.”
Lamont also shared that he told Prospect that he wants an independent monitor to oversee the hospitals and ensure patient safety is not compromised.
Meanwhile, Scanlon believes that if Yale New Haven and Prospect can’t work out their differences, it could be time to move on from the deal.
“Litigating this in both the courts and the press is not in the best interest of the patients, and certainly not the members that are in the [health] plan that I run,” he said, according to CT Insider. “Either Yale needs to finish this purchase, or if it's not a workable deal for them anymore… I think we need to figure out another path forward."
The dispute started to take shape in May when Yale New Haven sued Prospect to get out of the acquisition, alleging that the seller engaged in “irresponsible financial practices,” including failing to pay physicians and vendors. Prospect filed a countersuit soon after.
Then, Yale New Haven said Prospect was underfunding its employee pension plans, which prompted the Pension Benefit Guaranty Corporation to get involved last month and claim that Prospect owed more than $4 million for the three hospitals it offloading.
In response, the California-based company accused Yale New Haven of waging “an aggressive campaign in both the courts and via the media to denigrate Prospect Medical’s Connecticut hospitals and employees.”
Yale New Haven has dug in its heels and remains steadfast in its desire to change the conditions of the deal for it to be completed.
"Without revised terms, we don’t see a path forward that would allow us to make the necessary investments in these facilities without jeopardizing our system’s financial sustainability and uphold our commitment to the communities that we currently serve," a Yale New Haven spokesperson said in a statement.
The disintegration between the two transacting parties is a reminder of the complications that can set in after a hospital deal has been agreed upon but before it is finalized.
Health systems not only have to deal with the uncertainty of the FTC potentially blocking transactions, but also with keeping partners satisfied with the agreed upon conditions.
This means that both the buyer and seller should do their due diligence when entering into an agreement, checking under the hood of the involved organizations to have the clearest picture possible of the assets in question.
Otherwise, a stalled-out or dragging deal can have major consequences in both directions, disrupting care for patients, harming reputations, and hampering finances.
Northeast Ohio will see new primary care clinics in the coming years, combining the strengths of the two organizations.
Amazon One Medical continues to partner with health systems on primary care when it enters a new market.
Cleveland Clinic is the latest organization to join forces with One Medical, with the two sides set to leverage each other’s capabilities to expand primary care in northeast Ohio. Through the partnership, Cleveland Clinic will be able to offer its patients access to One Medical’s care model at new facilities, while One Medical will get the academic health system’s network of specialists and hospitals.
The first joint primary care location will open in 2025, with Cleveland Clinic and One Medical determining where to open additional clinics over the next several years.
One Medical has partnered with numerous health systems to build out its primary care services. The deals allow the company to cut down on the expenses required to put up and maintain brick-and-mortar clinics, which have been difficult to scale for other retailers.
Walmart and Walgreens are examples of retreats in the primary care, with the former selling its MeMD virtual care business to telehealth startup Fabric and closing all 51 of its health centers, and the latter planning to cut its stake in primary care clinic chain VillageMD.
Amazon has dealt with its own set of challenges in the space, but has settled on One Medical as its consolidated primary care and telehealth platform after acquiring the company for $3.9 billion last year.
One Medical offers same and next-day appointments, along with around-the-clock virtual care through the Amazon one Medical mobile app. Amazon Prime members can add One Medical benefits to their membership at a discount, making the services widely accessible.
That integration is appealing to partnering health systems, who are aiming to provide more of a retail experience. Hospital operators will also increase their volume with One Medical sending patients to them to receive speciality care.
“This collaboration demonstrates a shared commitment from both organizations to meet the needs of our patients and to enhance the care we provide to our communities,” Tom Mihaljevic, Cleveland Clinic CEO and president, said in a statement. “Amazon One Medical will complement our current primary care offerings, enabling patient access to essential health services.”
Organizations are primarily seeking to improve the patient experience through future digital health solutions.
The digital health technology industry is booming as health systems continue to invest in the space.
Hospital operators raised their spending on digital health over the past two years and are planning to pour more resources into solutions in the next 12 months, according to a survey by the Peterson Health Technology Institute.
The survey fielded responses from 332 decision-makers at health plans, employers, and health systems to gauge purchasers’ current approach, contracting process, and future plans with digital health.
Among the 100 respondents from health systems, the top three motivations for spending on digital health solutions were increased consumer demand (87%), improved outcomes (65%), and cost savings (49%).
Over the next year, 56% of health systems expect to increase their spending on digital health, while 30% plan to maintain and 3% anticipate decreasing investments.
Through future solutions, health systems want to improve the patient experience (80%), reduce administrative cost (75%), improve patient access (73%), reduce administrative burden (61%), improve health equity (59%), reduce spending on targeted conditions and treatment areas (54%), and remain competitive with offerings (52%).
To measure value for digital health solutions, health systems look for increased patient satisfaction (89%), patient engagement (78%), improved performance against key clinical outcome metrics (78%), decreased spend on medical costs (66%), revenue (42%), and decreased spend on pharmacy costs (36%).
Where AI fits in
While being one of the most talked about digital health technologies, AI’s effectiveness in clinical settings remains murky.
Where health systems have shown more willingness to implement AI is with administrative tasks that can reduce the time staff spend on workflow, potentially leading to less burnout and employee turnover.
A recent report by Silicon Valley Bank revealed that this year has already featured more investments in health tech companies leveraging AI than in any other year, with AI valuations up 50% since 2019.
In terms of spending, 44% of all health tech investment dollars went to AI companies through the first months of 2024, compared to 36% for all of 2023.
The ambitious partnership is hoping to find success outside of the typical merger or acquisition.
Longitude Health is the latest iteration of health systems collaborating to address some of the industry’s foremost challenges.
Nonprofits Baylor Scott & White Health, Memorial Hermann Health System, Novant Health, and Providence are forming a for-profit entity that will attempt to find innovate solutions for areas of impact, potentially creating a sustainable model for partnership.
The venture isn’t an entirely new concept. Other initiatives like Civica Rx, a generic drug producer, and Truveta, an electronic health record data and analytics firm, have seen systems come together. Longitude, however, aims to be more collective, with the intention of adding more organizations down the road and sharing successful solutions with the rest of the field.
Josh Berlin, CEO of strategic healthcare advisors rule of three, wasn’t surprised to see Longitude form considering the appeal of partnering and building to tackle the domains the entity is targeting.
“Every once in a while, these organizations emerge: health systems collaborating to get things done that external vendors aren't able to do for them, that they haven’t individually been able to marshal the resources around to be able to accomplish, or just generally because they've got good collaborative relationships and perhaps it's a good way to think together and maybe it leads to something bigger long term, like the creation of the super system or super regional health system,” Berlin said.
Longitude plans to launch three operating companies initially, focusing on pharmaceutical development, care coordination, and billing.
More operating companies are expected in the future, but the three areas the founding partners are pursuing first represent a good mix of realms that are affecting all health systems across the board, which should give Longitude a clear runway to get started, according to Berlin.
“But they've also chosen three areas that although we haven't gotten right yet by any stretch of the imagination, there are already lots of players that are either saturating or near saturating the market,” he said.
Longitude’s governance model may challenge its ability to get off the ground quickly and seamlessly.
The CEOs of the founding systems—Pete McCanna of Baylor Scott & White, David Callender of Memorial Hermann, Carl Amato of Novant, and Rod Hochman of Providence—will make up the Longitude board, but it will be Paul Mango, former executive at HHS and CMS, serving as the entity’s CEO.
“These are four strong nonprofit health systems that are now angling together around an entity that is going to be run by an external leader to all four of their systems,” Berlin said. “With that comes the trappings of how quickly can you build? How fast can you accelerate to something that looks like a minimally viable product in market across the three different companies they said.”
There’s also potential financial implications and regulatory hurdles of nonprofit organizations operating a for-profit venture. That likely poses more of a complication than a roadblock, but it’s an added layer for the systems to contend with.
Another barrier to success could be the difficulty in building brand new solutions that will contend with companies already in the space.
“How do you get sort of the speed to value equation tackled? Not value equation relative to quality and cost, but literally the speed to creating a value proposition to where you're not just incubating it within these four health systems where it needs to work, but also the potential to contract with other health systems,” Berlin said.
The possibilities are evident and the road to them is one Longitude is willing to navigate. Time will tell if it’s a path other systems will want to follow.
The insurer giants are reportedly discussing combining once again after initial talks broke down last year.
Nearly one year removed from stalling out on a potential merger, Cigna and Humana have returned to the table, according to a report by Bloomberg.
The two sides have reportedly had informal discussions about combining that are in the early stages, people familiar with the matter told the outlet.
Though some of the same issues that likely kept a merger from taking placethe first time around are still present, other circumstances have changed, which could clear the way for an agreement to be reached finally.
The Bloomberg report highlighted that Cigna wants to complete the sale of its Medicare Advantage business in the coming weeks before agreeing to other deals. It was announced in January that Cigna is offloading its Medicare unit to Health Care Service Corporation for $3.3 billion. The divestment likely affords Cigna a cleaner path to acquire Humana’s share of the MA market in the eyes of both investors and regulators.
Where regulators may still attack the merger is on the pharmacy benefit management (PBM) side, where Cigna holds a strong presence with its ownership of Express Scripts. Adding in Humana’s business would potentially create a concentrated market and trip up antitrust regulators.
The Federal Trade Commission is also fresh off issuing its final rule on premerger filings, which only increases the burden on transacting parties, as well as the scrutiny on deals.
In the wake of merger talks reportedly picking back up, investors didn’t appear to be any more eager than the first go-around. Cigna stock fell around 5%, while Humana shares slightly ticked up to 0.3%, indicating tempered expectations of a deal taking place. Cigna stock also dropped last year when the discussions were reported before picking back up when talks ended.
However, the combination of Cigna and Humana’s areas of focus would be largely complementary and allow the resulting organization to compete against peers UnitedHealth Group and CVS Health. Since merger discussions were put on ice last year, CVS in particular has dealt with its own struggles and is in the midst of a CEO changeover, making its future murkier.
