Hospitals' Revenue Streams: Uncovering The Us Healthcare System

Hospitals in the United States have been profitable, but patients have been burdened with medical debt. Hospitals generate revenue from patient care services, including surgeries, diagnostic imaging, and doctor appointments. The more tests, procedures, and operations a patient undergoes, the more revenue a hospital generates. Surgical patients are more profitable than medical patients, as surgical procedures are reimbursed at a higher rate. Hospitals also make money from investments, gift shops, food sales, and donations. The revenue helps cover expenses like salaries, supplies, and IT.

Surgical patients are more profitable than medical patients

Hospitals in the US make most of their revenue from patient care services, including procedures such as surgeries, diagnostic imaging, and billing for doctor appointments and services. The more tests, diagnostic or therapeutic procedures, or operations a patient undergoes, the more money the hospital makes.

While both medical and surgical patients may generate a case or bundled rate (a fixed payment that is the same regardless of the care delivered or the length of stay), the surgical patient's rate includes the cost of the procedure, which is generally more expensive. Hospitals that have more surgical patients than medical patients make more money. Conversely, hospitals that have a higher proportion of general medical patients will have a difficult time financially.

The length of a patient's stay also matters. Shorter stays are better for the hospital's finances than longer ones. Hospitals may even be penalized for lengths of stay that exceed the guidelines for a particular diagnosis.

Hospitals with more beds make more money

Hospitals in the US make money through patient care services, including surgeries, diagnostic imaging, and billing for doctor appointments and services. They also generate revenue from investments, gift shops, food sales, and donations. Surgical patients are generally more profitable than medical patients as surgical procedures are reimbursed at a higher rate. Additionally, hospitals benefit from admitting patients with better insurance coverage.

The number of hospital beds impacts the financial performance of hospitals. Hospitals aim to maximize bed utilization while managing patient length of stay. While a higher number of beds can increase revenue potential by accommodating more patients, it also leads to higher expenses for bed frames, customizations, and mattresses. ICU beds, for instance, are more expensive than standard medical bed frames, with prices ranging from $25,000 to $30,000.

In recent years, there has been a trend towards reducing the number of hospital beds. Improvements in medical procedures and efficiency have led to shorter patient stays, decreasing the need for as many beds. States have also passed laws limiting the construction of new facilities to prevent unnecessary hospitalizations and control costs. This reduction in beds can impact hospitals' ability to scale up during crises, as seen during the COVID-19 pandemic.

The relationship between the number of beds and hospital revenue is complex. While more beds can potentially increase revenue, it depends on various factors such as bed utilization, patient turnover, and efficient management of patient stays. Hospitals with greater than 500 beds have been reported to have higher operating margins than those with fewer beds. However, other factors, such as hospital type, teaching status, and state-specific circumstances, also influence financial performance.

In conclusion, hospitals with more beds have the potential to generate higher revenue by serving a larger patient volume. However, effective management of patient stays, surgical procedures, and bed-related expenses are crucial in maximizing financial performance. The number of beds is just one aspect of a hospital's revenue stream, and other factors, such as patient mix and operational efficiency, also play significant roles in the overall financial health of a hospital.

Hospitals in the northeastern US have the highest average net patient revenue

Hospitals in the northeastern United States have the highest average net patient revenue, which is a key financial metric used to assess hospitals' relative financial strength. The average net patient revenue in the region is $336.4 million, with some of the top hospitals in the country by net patient revenue located in the northeast, particularly in New York.

Net patient revenue (NPR) is the aggregate money generated by hospitals from patient services, calculated by subtracting patient discounts from total patient revenues. Hospitals with more surgical patients tend to have higher net patient revenues as surgical patients generate higher reimbursement rates than medical patients, who only produce a daily room rate. Additionally, surgical patients' rates include the cost of the operative procedure, contributing to higher revenues for hospitals.

The more tests, diagnostic or therapeutic procedures, and operations a patient undergoes, the more revenue a hospital generates. This is because each procedure generates technical and professional fees. However, shorter hospital stays are preferred as payment schemes reward shorter stays within specific diagnoses and may penalize hospitals for exceeding the guideline length of stay for a particular diagnosis.

The high average net patient revenue in the northeastern US can be attributed to several factors. Firstly, large hospitals with more than 250 beds tend to have higher net patient revenues, and hospitals in this region are some of the largest by average bed count. Secondly, hospitals in large cities with a high cost of living, such as New York, contribute to higher costs and revenues in the region. Lastly, hospitals in the Northeast also reported the highest average annual increases in operating expenses between 2018 and 2022, which may have contributed to their higher net patient revenues.

While net patient revenue is crucial for hospitals, it is essential to consider their expenses. Hospitals have high operating expenses, including employee salaries, facility renovations, and medical supplies. The average operating expense for hospitals in the Northeast is $391.2 million, the highest in the country. Despite generating high revenues, hospitals in the Northeast have the lowest median operating margin at -8.7%not sufficiently cover their expenses.

Hospitals make money from investments, gift shops, and food sales

Hospitals in the US make money primarily by treating patients and performing surgeries. The more procedures a hospital carries out, the more money it makes. Surgical patients are more profitable than medical patients, as surgeries are reimbursed at a higher rate than typical medical care, which only generates a daily room rate. The length of stay also matters, with shorter stays being more profitable than longer ones. Hospitals also benefit from having physicians who admit better-insured patients.

However, hospitals also generate revenue through other means, including investments, gift shops, and food sales. Some hospitals have been criticised for using lucrative Wall Street portfolios to increase their profits rather than lowering healthcare costs for patients. In 2018, the largest nonprofit hospitals earned a collective $21 billion in investment income, nearly tripling their operating profit on patient care.

Gift shops are another source of income for hospitals, with some making about $500 per square foot of space, while newer concept gift shops can make almost double that. Hospital gift shops have evolved to become more like "real" gift stores, attracting customers beyond just hospital visitors and patients. They often employ professional buyers who select merchandise at gift market trade shows.

Additionally, hospitals can generate revenue through food sales, with cafeterias and cafes serving both patients and visitors. While there is limited information specifically about food sales, it is reasonable to assume that hospitals can make a significant amount of money through this channel, given the high volume of people they serve.

Hospitals profit even when patients are in medical debt

Hospitals in the US make money from patient care services, including surgeries, diagnostic imaging, and billing for doctor appointments and services. Hospitals prefer surgical patients over medical patients as surgeries are reimbursed at a higher rate than typical medical patients who only generate a daily room rate for their care. The more tests, diagnostic procedures, therapeutic procedures, and operations a patient undergoes, the more money the hospital makes. Hospitals also make money from investments, gift shops, food sales, and donations.

Despite this, many hospitals have become wealthy even as their bills force patients into debt. A review of hospital finances in the country's 306 hospital markets found that several of the most profitable markets also have some of the highest levels of patient debt. For instance, hospitals in Charlotte, N.C., where a quarter of residents have medical debt, recorded an average operating margin of 13.6% from 2017 to 2019. Similarly, hospitals in Gainesville and Lakeland, two central Florida markets where a quarter of residents carry medical debt, had average margins of over 9%.

In the US, 58% of the more than 5,000 community hospitals are non-profits and are required to provide financial assistance to patients who cannot afford to pay for medical care. However, there have been complaints from consumers about medical bills from non-profit hospitals, indicating that these financial assistance programs may not be working as intended. Additionally, the IRS does not have a strong track record of enforcing these requirements, as they have not revoked any hospital's non-profit status for non-compliance in the past ten years.

While hospitals are making profits, patients are being squeezed by skyrocketing medical prices and rising deductibles. About a third of the 100 million adults in the US with healthcare debt owe money for a hospitalization. Patients often need to invest time correcting mistakes made by medical debt collectors and may also face reduced credit access and added psychological stress.

Frequently asked questions