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Not-for-profit hospitals and healthcare systems with early fiscal year ends saw notable improvement during their 2024 median financial performance relative to the prior year.
According to data from Fitch Ratings, it is anticipated that not-for-profit hospitals will be at least in line with the audited financial results for those hospitals with a fiscal year end in first half of 2024. However, full current year medians will remain well below pre-pandemic levels, even at the higher end of the rating spectrum.
The median operating margin for providers with early fiscal year ends improved to 1.2% during current year from -0.5% in current year 2023. A decline in personnel costs, particularly a continued drop in contract labor use, contributed to the improvement in operating profitability. Personnel costs as a percent of total operating revenues fell to 54.5% during 2024 from 55.4% in 2023 when comparing mid-year fiscal year end results.
Labor challenges continue to push base salary and wage expenses higher, leading to a significant median year-over-year expense increase of 6.9%, the Fitch Rating data shows. This would have been even higher without the sector’s ongoing efforts to recruit and retain talent, streamline operations and optimize supply chains. Fitch expects workforce development to remain a central focus for health systems to address labor shortages, enhance staff capabilities and maintain sustainable profitability levels.
Operating profitability benefited from strong revenue growth, with a median increase of 9.1% for early reporting hospitals. Revenue growth was driven by higher patient volumes, favorable updates to payor contracts in recent years, and improved revenue cycle management.
The data shows that hospitals are strategically investing in growth and efficiency projects, with capital spending as a percentage of depreciation increasing to 116.3% in current year 2024 from 107.5% in current year 2023, marking a return to a capital spending ratio more in line with pre-pandemic trends. The growth in capex, enabled by improved operating performance and strong investment returns, is increasingly focused on developing ambulatory networks and strengthening IT, including access points, data analytics, AI, and cybersecurity to maintain competitiveness.
Early current year 2024 medians show hospitals and health systems’ financial profiles continue to be supported by robust liquidity. Days cash on hand remained stable at approximately 220 days, while cash to debt improved incrementally to 178.5% from 170.2%. The liquidity cushion is crucial for weathering ongoing headwinds and macro uncertainties, including potential changes to Medicaid affecting enrollment or reimbursement levels.
