CFOs meticulously sift through quarterly earnings reports, but what do the results from some of the biggest in the nation tell us about the overall trends?
While operating margins continue to grow and stabilize, are CFOs in the clear? Not so fast.
Now that health system financial results for the third quarter and first nine months of 2023 have all come in, it gives CFOs a chance to examine the overall trends.
With many making improvements on the back of some challenging financial years, operating losses, high expenses, and labors costs still weighed heavy on some of the biggest health systems in the nation—meaning these issues were surely exacerbated for smaller hospitals.
Here are eight key trends complied from these earnings reports that hospital CFOs need to know.
Increase in operating losses.
Several healthcare systems, such as CommonSpirit and Community Health Systems, reported increased operating losses compared to the previous year. This trend indicates continued financial challenges and the need for cost management strategies.
Revenue growth.
Despite the challenging financial environment, many healthcare systems, including Trinity Health, Christus Health, and HCA Healthcare, reported an increase in operating revenue. This suggests that there is potential for generating more income, although it is crucial to control expenses to improve overall profitability.
Higher expenses.
Most healthcare systems experienced an increase in expenses, particularly in terms of employee compensation and benefits, as well as supply costs. Hospital CFOs should closely monitor expense growth and implement strategies to manage costs effectively.
Net income fluctuations.
Net income varied among the healthcare systems analyzed. While some, like Kaiser Permanente and Universal Health Services, reported an increase in net income, others, such as Renton-based Providence, experienced larger operating losses. CFOs should focus on optimizing revenue streams and managing expenses to drive positive net income.
Impact of investments.
CommonSpirit and Providence reported significant net investment losses, impacting their overall financial performance. CFOs should carefully evaluate investment strategies and their potential impact on the organization's financial health.
Operating margin changes.
Tenet Healthcare reported a decrease in operating income, resulting in a decline in the operating margin. Hospital CFOs should monitor and analyze their organization's operating margin to ensure financial stability and sustainability.
Positive financial performance.
Despite the overall challenging environment, some healthcare systems, including Christus Health and Mayo Clinic, reported improved operating income and net income. CFOs should study the strategies employed by these organizations to identify potential best practices.
Increased expenses driven by wage increases.
Providence and Mayo Clinic reported higher expenses due to wage increases. Hospital CFOs should pay special attention to labor costs and develop strategies to manage these expenses effectively.
As for the future? Not much is changing in terms of strategy. Hospital and health system CFOs need to continue to focus on optimizing revenue, controlling expenses, monitoring investments, and implementing cost management strategies to navigate the complex financial landscape.
Amanda Norris is the Director of Content for HealthLeaders.
KEY TAKEAWAYS
Keeping up with quarterly earnings reports is a necessity, but examining the overall financial trends is key.
With many of the largest health systems making improvements in Q3, operating losses, high expenses, and labors costs still weighed heavy.
What does it mean? Not much should be changing in terms of strategy for CFOs.