Ethan Rhodes
Hospitals have been described as wealthy institutions that profit off their patients, but they are also expensive to run. They have many overheads, from employee salaries to building maintenance, supplies, and equipment. The profitability of a hospital depends on many factors, including its size, location, and whether it is part of a larger health system. While some hospitals in the US have achieved high profits, others are losing money due to rising costs and difficulties in collecting payment from patients.
| Characteristics | Values |
|---|---|
| Net patient revenue (NPR) of hospitals in the U.S. in 2022 | $223.7 million |
| Net patient revenue at U.S. hospitals increased by | $40 million in the last 5 years |
| Average operating expenses of hospitals in the U.S. | $230.5 million |
| Hospitals with more than 250 beds saw an annual average increase in net patient revenue between 2018 and 2022 | 6.2% |
| Hospitals with 26 to 100 beds have annual net patient revenue increases | 3.8% |
| Hospitals in the northeastern U.S. have the highest average net patient revenue | $336.4 million |
| Hospitals with the highest net patient revenue | New York-Presbyterian Weill Cornell Medical Center, St. Luke's University Hospital, Tisch Hospital |
| Hospitals make money from | patient services, advertising, team sponsorships |
| Hospitals have a lot of expenses including | employee salaries, facility renovation, supplies, equipment, drugs, building maintenance, utility bills, waste disposal, etc. |
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What You'll Learn
High operating expenses
Operating a hospital is expensive, with hospitals incurring high operating expenses. According to data from Definitive Healthcare's HospitalView product, the average operating expenses for hospitals in the US rose from $183.9 million in 2018 to $230.5 million in 2022, an increase of almost $46.6 million. This increase in expenses outpaced the growth in net patient revenue (NPR), indicating that hospitals are operating on low margins.
There are several factors contributing to the high operating expenses of hospitals. One key factor is employee salaries. Hospitals have a large number of employees, including doctors, nurses, aides, administrators, and support staff such as cleaners, cooks, and transport workers. Many of these employees are highly paid, and labour costs can be significant. Additionally, hospitals must also pay for the maintenance and renovation of their facilities. This includes utility bills for gas, water, electricity, and sewage, as well as waste disposal, which can be particularly expensive for biological waste.
Another significant expense for hospitals is the cost of supplies and equipment. A single hospital bed can cost around $5000, and other expenses include sheets, window drapes, drugs for the pharmacy, and inventory systems for tracking medications. Hospitals also incur costs for landscaping, cleaning supplies, and other general overhead expenses. The size of the hospital also matters, with larger hospitals reporting higher total expenses. Hospitals with more than 250 beds had average total expenses of $989.8 million, compared to $36.8 million for hospitals with 25 or fewer beds.
The high operating expenses of hospitals have led to financial pressures and challenges. Hospitals rely on patient revenue to remain financially stable, and they must balance their expenses with income generated from patient services. This has resulted in hospitals implementing cost-saving measures, such as holding down wages and seeking better contracts from suppliers. However, these measures can have trade-offs, and hospitals may face criticism for spending lavishly on advertising, sponsorships, and amenities while patients struggle with medical debt.
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Net patient revenue
The average net patient revenue at U.S. hospitals increased by nearly $40 million in the last five years, from $183.9 million in 2018 to $223.7 million in 2022, or about 5% annually on average. The strongest performance in average net patient revenue increases was for large hospitals, or those with more than 250 beds. Their annual average increase in net patient revenue between 2018 and 2022 is 6.2%. Hospitals with 26 to 100 beds have annual net patient revenue increases of about 3.8% annually. Hospitals in the northeastern U.S. have the highest average net patient revenue at $336.4 million.
The top U.S. hospital by net patient revenue is New York-Presbyterian Weill Cornell Medical Center, with a total net patient revenue of $9.3 billion. Located in the largest city in the U.S., this hospital’s high patient volume is a key source of its higher net patient revenue. In fact, the short-term acute care hospital also ranks highly on our list of hospitals with the highest number of patient discharges. In second place is St. Luke’s University Hospital – Bethlehem in Bethlehem, Pennsylvania, with an NPR of $8.9 billion. As the headquarters of the nonprofit St. Luke’s University Health Network, the University Hospital in Bethlehem is one of 15 campuses and over 300 outpatient sites in the network. The third top hospital on our list is Tisch Hospital, also located in New York City, with $7.2 billion in net patient revenue. Like New York-Presbyterian Weill Cornell Medical Center, Tisch Hospital also sees a high volume of patients.
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Healthcare system affiliation
Hospitals have high operating expenses, including employee salaries and facility renovation costs. Net patient revenue (NPR) is a key financial metric that can be used to assess a hospital's financial health. On average, U.S. hospitals' NPR increased by about $40 million between 2018 and 2022, from $183.9 million to $223.7 million. Larger hospitals with more than 250 beds saw the strongest performance in NPR increases during this period.
Physicians are often affiliated with multiple hospitals within the same region, allowing them to perform specific operations and procedures at these hospitals. These affiliations can take various forms, such as contractual arrangements or highly integrated models, offering varying levels of independence to physicians.
In summary, healthcare system affiliation influences hospital finances and patient care. Hospitals with more affiliations tend to have higher NPR and can provide better patient care through increased access to resources and medical expertise.
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Advertising and sponsorships
Hospitals and healthcare providers have been spending a lot of money on advertising in recent years. According to estimates, healthcare providers spent upwards of $10 billion on advertising in 2017, with projections suggesting that this figure could reach $11.56 billion by 2021. This increase in advertising spend is due to hospitals trying to influence consumers and their decisions about where to seek care. With the internet providing patients with more choices, hospitals are investing in advertising campaigns to promote their brands and expand their market reach.
The majority of hospital advertising spending goes into traditional forms of advertising, such as television spots, direct mailers, and newspaper ads, which made up about $8.7 billion in 2017. However, there is a growing interest in digital advertising as more patients move online. It is projected that mobile ads will rival print newspaper ads by 2021, with hospitals expected to spend $2.9 billion on digital advertising, up from $2.1 billion in 2017.
Hospitals are also using social media campaigns to highlight the patient experience and are spending millions on certain clips and television airtime. A study by Drexel University researchers found that print advertising themes for regional hospitals in the Philadelphia area lacked variation, with "patients" and "health providers" being the most commonly used themes.
While hospitals are spending a significant amount on advertising, there is no clear association between advertising and hospital performance measures such as patient safety, mortality, or readmission rates. Some studies suggest that hospitals that advertise are more likely to be nonprofits, larger, and wealthier. Additionally, there is a positive correlation between advertising spending and customer satisfaction scores across multiple industries, including healthcare.
The increase in hospital advertising spending has led to concerns about misleading marketing and the potential for patients to choose inefficient or unsafe care based on billboards, radio ads, or social media recommendations. Hospitals are not required to disclose their quality scores or how efficiently they deliver care, and there are concerns that advertising funds could be better spent on community health initiatives. Despite these concerns, advertising has become the norm for healthcare providers, and it is expected that spending on marketing will continue to grow.
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Operational savings
Operating a hospital is expensive, with hospitals facing high operating expenses. Hospitals have to grapple with rising costs, staffing shortages, evolving payment mechanisms, and an aging patient base. However, hospitals can implement several strategies to reduce operational costs and improve financial stability.
Firstly, hospitals can focus on optimizing their operations. This includes redesigning processes and teaming models to alleviate staffing pressures and reset cost structures. Hospitals can also expand their delivery networks to include more outpatient care settings, such as clinics and non-acute care facilities, where they can provide clinical services at a lower cost. Additionally, hospitals can leverage technology, such as artificial intelligence tools, to improve productivity, automate processes, and reduce administrative burdens.
Another strategy is to standardize services through a single partner, reducing overall costs and increasing patient satisfaction. Hospitals can also save money by reducing the number of contracts with original equipment manufacturers (OEMs) and maintenance vendors and consolidating them into a single contract with one clinical engineering provider. Additionally, hospitals can improve inventory management practices to reduce unnecessary spending and supply chain disruptions.
Furthermore, hospitals can improve patient flow by standardizing how patients move through the hospital, reducing delays, wait times, and maximizing occupancy. Outsourcing food services and adhering to menu costs, recipes, and waste reduction can also lead to significant savings.
By implementing these strategies, hospitals can achieve operational savings and improve their financial sustainability while continuing to deliver quality patient care.
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Frequently asked questions
It depends on the hospital. While some hospitals in the US are seeing high profits, others are losing money. Overall, the average net patient revenue at US hospitals increased by nearly $40 million in the last five years, from $183.9 million in 2018 to $223.7 million in 2022.
The profitability of a hospital depends on various factors, including the number of patients, the services provided, the size of the hospital, and its location. Larger hospitals with more beds tend to have higher net patient revenue. Hospitals in the northeastern US, for example, have the highest average net patient revenue.
Hospitals have significant expenses, including employee salaries, facility renovation and maintenance, utilities, waste disposal, supplies, and equipment. Hospitals also need to reinvest profits to stay up-to-date with the latest technology and treatments.
Not always. While hospitals may reinvest profits into improving their facilities and services, patients may still face high medical bills and debt. In some cases, hospitals may prioritize profits over patients, leading to increased costs for medical care.
Hospitals can increase their profits by maximizing revenue and minimizing costs. This may include negotiating better contracts with suppliers, reducing employee salaries, or increasing patient fees. Hospitals that are part of larger health systems may have access to more patients and higher net patient revenue.
