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Revenue Trends at U.S. Hospitals

November 13, 2019 BY Rachel Grande

Revenue Trends at U.S. Hospitals

The Centers for Medicare and Medicaid Services (CMS) recently announced the results of their Hospital Value-Based Purchasing Program for the 2020 fiscal year, with an estimated total $1.9 billion available for value-based incentive payments.

What does this mean? More than 1,500 hospitals—roughly 55 percent of program participants—will receive higher Medicare payments as bonuses for delivering excellent care quality across four areas: clinical outcomes, safety, person and community engagement, and efficiency and cost reduction.

With an average net increase of 0.60 percent in payment adjustments, it’s unlikely that these bonuses will affect significant change in hospital revenue trends. The Value-Based Care initiative is, however, one way to ensure a holistic patient-focused approach to healthcare in a consumer-centric market.

These concerted efforts to improve care quality and overall patient experience have had a positive impact on hospital financials. According to Definitive Healthcare data, average net patient revenue (NPR) at U.S. hospitals has steadily increased from $282.7 million in 2014 to $334.5 million in 2018, with average hospital operating expenses following a similar upward trend. In the same time period, average operating expenses have increased from $264.2 million to $313.9 million per year.

At a granular level, this rise in average net patient revenue becomes much more complex. In this blog, we break down the financial metrics to gain a better understanding of recent revenue changes.

Average year-to-year revenue change is on the decline

In the past five years, hospital average net patient revenue has grown by almost $52 million—an undeniable upward trend in financial performance. At the same time, the average change or increase in net patient revenue year-over-year has decreased in dollar amount.

Hospital NPR & OpEx average year-to-year change by dollar amount

Fig 1 Graph from Definitive Healthcare’s Expert Premium Content platform, using financial metrics from Definitive Healthcare’s Hospital & IDN database. Results based on 5,466 U.S. Hospitals with reported NPR and 5,540 U.S. Hospitals with reported OpEx data each year from 2014 to 2018.

From 2014 to 2015, for example, the average increase in net patient revenue was $18 million, while the change was only a difference of $4 million between 2017 and 2018. Despite consistent success in net dollars earned, this decline shows a slowing trend in revenue growth.

The trend is similar on a regional level, as well. Hospitals in the western U.S. report average net patient revenue increases much greater than the national numbers—with an increase of $24.6 million from 2014 to 2015, and a change of only $4.7 million between 2017 and 2018.

Small hospitals report strongest net patient revenue percentage increases

Hospital revenue trends are influenced in large part by hospital size or, more specifically, by hospital bed count. In this case, average net patient revenue correlates directly with hospital bed count—where smaller hospitals with fewer beds report lower dollar amount increases than larger hospitals with more beds.

Between 2017 and 2018, for instance, the average year-to-year increase in net patient revenue ranges from $1 million for hospitals with 25 beds or fewer, and over $105 million for hospitals with 500 beds or more. This result is expected, given that higher bed counts allow more patients to be seen at any one time—thus increasing revenue potential.  

Average net patient revenue year-to-year change by hospital bed count

Fig 2 Chart from Definitive Healthcare’s Expert Premium Content platform, using financial and clinical metrics from Definitive Healthcare’s Hospital & IDN database. Results based on 5,466 U.S. Hospitals with reported data each year from 2014 to 2018. Outliers based on percentage change values +/- two standard deviations from mean percentage change were removed from analysis.

While smaller hospitals may see lower increases in net year-over-year earnings by dollar amount, a review of the same revenue trends by percentage change indicates a much more competitive performance at these facilities.

Since 2015, hospitals with 25 beds or fewer have reported percentage increases in net patient revenue that were notably higher than national averages. With an average year-over-year revenue increase of about 4.33 percent during this time, smaller hospitals rival facilities with 251 to 500 beds in terms of revenue growth rate. Despite this, hospitals with the greatest number of beds still show the highest year-over-year change in revenue growth.

Steady increase in average hospital operating expenses

Hospital operating expenses—including employee salaries, maintenance costs, and other operational fees—are rising almost in parallel with average net patient revenues. Between 2014 and 2018, average hospital operating expense has grown by nearly $50 million.

On a national scale, year-over-year changes in average operating expense show a $1.4 million increase from 2014 through 2016 before markedly decreasing through 2018. Percentage change in average operating expense has also remained fairly steady in the past five years—ranging from 3.4 percent between 2017 and 2018, and 4.48 percent in the 2014 to 2015 calendar year.

Hospital operating expense average year-to-year change by region

Fig 3 Chart from Definitive Healthcare’s Expert Premium Content platform, using financial metrics from Definitive Healthcare’s Hospital & IDN database. Results based on 5,540 U.S. Hospitals with reported data each year from 2014 to 2018. Outliers based on percentage change values +/- two standard deviations from mean percentage change were removed from analysis.

At a regional level, hospitals in both the northeast and west are reporting average year-over-year increases in operating expense by dollar amount that are significantly higher than national averages. Western hospitals, in particular, are showing the greatest increases in average operating expense both in terms of dollar amount and percentage change.

As with trends in net patient revenue, average change in year-over-year operating expense correlates directly with hospital bed count—with smaller hospitals reporting lower increases in dollar amount from year to year. On a percentage change basis, however, smaller hospitals again compete with larger facilities.

Between 2015 and 2018, hospitals with 25 beds or fewer report an average increase of 4.55 percent in operating expense. Hospitals with 251 to 500 beds, in comparison, see an average increase of 4.4 percent in operating expense for the same three-year period.

Learn more

Interested in learning more about revenue trends, and how you can leverage financial data to sharpen your sales strategy? Definitive Healthcare provides detailed financial metrics for over 8,800 U.S. hospitals and health systems. Start a free trial today to see how you can:

  • Analyze trended financial data to target your ideal clients
  • Compare revenue trends at individual provider sites
  • Access spending and purchasing information across facility types
  • See which hospitals received the highest CMS penalties and reimbursements

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