Hospital Margins Keep Shrinking. Were Hospitals Too Optimistic About EHR Returns?

Hospital margins continue to dwindle. Modern Hospital shares the bleak news here, based on analysis of financial reports from 179 hospitals:

  • Average operating margin in 2013 was 3.1 percent, down from 3.6 percent in 2012
  • 61.3 percent of organizations saw their operating margins deteriorate over the previous year
  • Only 84.4% of provider organizations operated in the black last year, down from 89.2% in 2012
  • Even hospitals that managed to grow revenue lost money, as profiled system Cone Health in North Carolina did in operating at a $44 million deficit despite increasing revenue by 10 percent

Author Beth Kutscher attributes some of the tightening margins to diminishing relief from staff and cost cuts by many hospitals in 2012. The short-term financial relief such cuts provided hospitals has shifted to pain from struggling to deliver quality care efficiently with fewer people.

The article also notes that Cone Health and Providence Health & Services out of Washington state felt huge expense hits from investment in new EHR systems (Providence to the tune of $750 million). We’re quite interested to see how these investments affect financial performance for providers in the coming years. We hear from a more and more hospital executives who are dialing down their expectations for cost savings and efficiency gains from EHR systems. Experience in the past couple of years has provided many empirical and anecdotal examples that indicate EHR doesn’t reduce costs of providing healthcare. And in some cases the huge investments in EMR systems with negligible hard ROI has crippled hospital credit stability.

EHRs certainly stand to make patient clinical records more accurate and accessible, both at the point of update and over time. This should continue to improve the quality of patient care based on ready, correct information as these systems become comprehensively adopted in connected in the coming years. But EHRs don’t fundamentally change or improve the efficiency of coordinating care, particularly in a hospital inpatient setting. It takes big changes in how hospitals think about efficiency and orchestrate care coordination to truly reduce costs through more efficient, consistent progression of care milestones. As more hospitals commit to adopting logistical models for coordinating care, we will see more transformation to reliable, predictable care. That’s the only foundation for hospitals to continuously and predictably deliver the greatest quality care and patient experience at the lowest costs.

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