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Turning to health system financial performance in Q1, I created the below scatterplot to understand who among the largest health systems is performing well. • Year over Year Revenue growth is plotted on the Y axis • Operating margin performance is plotted on the X axis. Side note - I learned how to make a scatterplot like this in Excel just for this visual :) Anyway, the main thing you need to know is that health systems WANT to be in the top right quadrant, and the bottom left quadrant (low operating margin combined with low revenue growth) is less than desirable. While I was putting this analysis together, some folks pointed out to me that revenue growth might not be the best metric to study here given there's some noise in total revenue numbers. For that reason I'll probably shift to doing operating cash flow generation analyzed against net margin (potentially backing out investment income) or operating margins, or look at pure patient revenues instead! Back to the analysis - you can see top performers here pretty clearly from Q1 (and most quarters). HCA, UHS, Baylor, AdventHealth, Sentara, Mayo all make the cut, and Tenet really should've made the cut too (revenue didn't grow as quickly due to hospital divestitures) so you can throw them up there too. These are the best of the best among the largest 20 or so health systems. A majority of the nonprofits sit in the top left quadrant, meaning these players saw a decent level of revenue growth but still operate near breakeven. This dynamic seems pretty typical for most nonprofits. A notable outlier in the worst quadrant is UPMC, with poor revenue growth (4.0%) and negative operating margins (1.4%). While outwardly UPMC is perceived and hailed as a well-run system, lately UPMC seems to be struggling as the entire state of Pennsylvania seems to want to consolidate further and demographic headwinds hamper its growth trajectory. PS - if you enjoy visuals and analysis like this around the business of healthcare subscribe to my newsletter Hospitalogy with 34k+ others! https://lnkd.in/gniNmHvz
Kind of odd to imply that a non-profit that posts a 1-2% profit is not "performing well." Isn't that the whole point of being a non-profit - that they invest potential profits back into operations?
Would be interesting if there was a way to introduce a Z variable with some measure of "Market dominance / monopoly pricing power"
Super misleading without nonprofit health systems! The CMS would prosecute them (via the OIG) if their profit margins go above 10%… so it’s hard to have these numbers without nonprofit numbers - there’s often a duopoly or case mix index triage in neighborhood hospitals.
I always thought performing well for a healthcare system should be better patient outcomes. The current metrics are all tied to $. Interesting how that flip has occurred, isn’t it?
Getting low operating margin is often a goal. Spending your budget before year end to ensure you get it next year, buying unnecessary solutions and building things that need not be built ensures a hefty amount of revenue can deliberately hide your net income. It’s all a game.
Lil curios. Is it good to be in the Top Right quadrant, High Revenue Growth and High Operaring Margin. How about the patient experience and outcomes ?
Yikes Common Spirit 😳 Lots of energy spent growing revenue on stuff that loses money.
And right there is probably the problem with the US Health system. I would argue that measures of a hospital performing well are low death rates, low readmission rates, low levels of secondary infections, high patient satisfaction scores, etc. The flipside of this is, publicly funded hospitals are not always the most efficient organisations.
Great commentary here. Let's keep the conversation going. Blake, look forward to seeing an updated analysis based on the comments below. Looking at case mix index and how that impacts operating margin would also be interesting...
Healthcare Strategy Consultant | Deloitte Alum | MHA
2wIncluding only nonprofit systems and move the high operating margin parameter to something like 5% would be a little more representative of reality. I think it would help to distinguish between low margin and organizations reporting a loss.