Franklin Trust Ratings Franklin Trust Ratings | Provider Performance Analytics

U.S. Hospital Total Profit Margins Fall to 4.26% from 4.5%.

Negative Operating Profit Margins from Patient Care Services Improve to -0.125% from -1.16%

Franklin Trust Ratings Analysis: Reveals increase in median Operating Profit Margin in U.S. hospitals while median Total Profit Margins fall. Analysis includes August update from federal filings of U.S. Hospital industry for fiscal year 2015 revealing latest impact of Affordable Care Act on U.S. Hospitals.

Boston, August 30, 2016 – U.S. Hospital Operating Profit Margins, that measure profitability with respect to patient care services for FY15, realized broad improvement from the prior fiscal year in 13 of 14 hospital facility type categories. The overall median Operating Profit Margin for all U.S. hospitals increased from (-1.16%) in FY14 to (-0.125%) for FY15. The median for-profit hospital reported a decline of 0.27 (or -7.0%) to a FY15 margin of +3.59% from the FY14 margin of 3.86%. For-profits maintain the highest Operating Profit Margin performance of the 14 categories reporting.

Not-for-Profit hospitals realized the largest percentage improvement in Operating Margin among the ownership groups.
Sole Community Providers report the largest absolute increase cutting their prior year Operating Profit Margin loss of -3.37%, to now report a negative Operating Margin of -1.56%.
Rural Referral Centers and Disproportionate Share hospitals report +0.98% and +0.17% respectively in Operating Profit Margins.
System Affiliated hospitals report a median Operating Profit Margin of +2.87%. (See Table A below.)

U.S. Hospital Total Profit Margins, that measure overall profitability of a hospital and include other income such as: contributions, endowment revenue, government grants, investment income and other revenue not related to patient care services, reported decreases from the prior fiscal year in nine of the fourteen facility type categories.

Not-for-Profit hospitals representing the largest ownership category reported a 12% decrease in Total Profit Margins.
Government hospitals representing the smallest ownership category reported the largest increase in Total Profit Margins.
Rural Referral Centers reported the largest decrease of 16% in Total Profit Margin.
Investor-owned hospitals that perform at the highest Total Profit Margin rate of +5.78% for FY15 decreased from the FY14 margin of +6.05% in the prior year.
Small hospitals with fewer than 25 beds reported a Total Profit Margin increase of 32% year over year. (See Table B below.)

Commenting on the numbers, John R. Morrow, Managing Director of Franklin Trust Ratings stated, “The industry has proven once again to be resilient and still highly dependent on balancing non-patient care services to maintain stability with the core patient care business. The improvements show a continued tightening of the belt by hospital operators. With net patient revenue per adjusted discharge increasing 1.79% and expenses per adjusted discharge (CMI and wage adjusted) increasing 1.6% over the prior year, hospitals have a very narrow incremental margin to achieve. Improvement in Operating Profit Margins underscores the focus and attention management teams must be placing on driving value for patient care services under difficult reimbursement conditions.”

The data were compiled from the latest individual annual hospital filings of Hospital Medicare Cost Reports with the federal government covering fiscal years 2014 and 2015. The latest data was obtained through July 27, 2016 with a majority of all hospitals reporting for FY 2015. Data represent 4,474 general service community hospitals. All values are medians.

About Franklin Trust Ratings, LLC. – The Company provides comparative institution-specific performance information and ratings about the: financial, operational, clinical, quality, safety, patient experience, outcomes and efficiency of U.S. Hospitals and related providers, including physicians and their prescribing patterns. The health care information technology business is led by a team who have built and implemented national hospital performance improvement and ratings programs for over thirty years.