Report: Indiana Hospital Margins Under 1%, Below National Average
May 2, 2024
Report: Indiana Hospital Margins Under 1%, Below National Average

​​​​​Hospitals weigh in on ongoing challenges as financial strain continues 

May 2, 2024 (INDIANAPOLIS) — According to a new analysis by Kaufman Hall, Indiana hospitals operated on a cumulative 0.9% operating margin in 2023, the most recent year in which complete data is available. Despite minor improvement compared to 2022 in which Indiana hospitals operated on a -2% loss, hospital margins across the state remained highly depressed relative to the nation. According to the report, hospitals across the U.S. operated on an average 2.3% margin in 2023, outpacing hospital margins in Indiana.  

While conditions improved slightly for Indiana hospitals relative to last year, their financial sustainability remains at risk,” said Erik Swanson, Senior Vice President of Data and Analytics at Kaufman Hall. “To be in good financial standing, a hospital should operate within a 4-6% margin. At current levels, Indiana hospitals are barely breaking even, which is simply unsustainable.”  

Improved volumes and reductions in contract labor contributed to improved margins for Indiana hospitals in 2023; however, operating expenses rose higher than national growth during this time due to inflation and other rising cost pressures.  

Expenses for medical supplies increased 10.3%, non-labor expenses rose 9.7%, and other expenses including the Hospital Assessment Fee – the tax hospitals pay to help fund Indiana’s Medicaid program – increased 9.5%, at a much higher rate than hospitals nationally. According to the report, Indiana hospitals’ low Medicaid rates, which rank far below the national average, also contributed to significant financial challenges.  

The financial strain on hospitals is of great concern as expenses rise and government reimbursement covers far below the cost of care – especially in Indiana,” said Brian Tabor, president of the Indiana Hospital Association. “Our hospitals remain committed to providing quality care across the state, but we must ensure they have the resources they need to remain viable in their communities.” 

Indiana hospitals’ net patient revenue per adjusted discharge decreased in 2023 while hospitals nationally experienced an increase, heightening the strain on Indiana hospitals grappling with rising expenses. Despite these challenges, Indiana hospitals provided a 22% increase in free care to patients in 2023. 

Consistent with Kaufman Hall’s findings, hospitals across the state reported the following ​

  • “The financial pressures facing Johnson Memorial Health are immense. Reimbursement from governmental agencies has not kept pace with inflation and for-profit insurance companies are denying more claims than ever. The rising costs associated with the salaries and benefits of employees, supplies, cybersecurity, and the Indiana Hospital Assessment Fee, are eroding any potential reinvestment. It is becoming increasingly more difficult to invest in the people and technology needed to ensure 24/7 access to the high-quality healthcare that our patients deserve.” Dr. David Dunkle, President and CEO of Johnson Memorial Health 

  • In 2023, Methodist Hospitals suffered a significant loss in operating income. While our revenue efforts were strong, rising costs outpaced them. This trend, combined with changes in DSH payments, will create unsustainable financial hardship for our system. We are attempting to work with the state to find a long-term solution to safety net hospital funding issues. – Matt Doyle, President and CEO of Methodist Hospitals 

  • “Beacon Health System was able to show a small positive income for 2023, just 3%. Although it was a drastic improvement from the prior year, it came as a result of making some very hard decisions about some of the services and access that we have historically provided. The continuing inflationary pressures on wages and supplies alongside the increasing Medicare and uninsured population make the chances of maintaining a positive margin more and more challenging. While we will continue to work on efficiencies, other factors will have to give, such as access to services or different reimbursement mechanisms. Beacon Health System is too important to our communities – we must find ways to continue to provide as much care as we can.” – Kreg Gruber, CEO of Beacon Health System

  • Woodlawn experienced significant losses this year as operational expenses continue to increase. For example, we must use a staffing agency to keep services such as maternity care, the emergency department, and universal care unit accessible to patients which is an extra, but necessary, cost. Our unwavering commitment to providing essential services is being tested by the financial uncertainty we face.” – Alan Fisher, President and CEO of Woodlawn Health
  •  “As a rural hospital serving an aging community with high utilization rates, Reid Health continues to experience financial pressures that impact our ability to meet the growing health needs of the communities we serve. These pressures include rising labor and supply costs, persistent inflation, clinician shortages, a shifting demand for services and lagging reimbursement for government-sponsored programs such as Medicaid and Medicare – which account for nearly 80% of Reid’s payor mix. These pressures, and the inequity among payors, have created an unsustainable situation that is forcing more and more hospitals to make difficult decisions to survive. Proactively, Reid Health embarked on a performance improvement plan in 2023 to evaluate our operations and develop a plan to help ensure Reid Health’s ability to serve our community for future generations. While we have made progress…pressures remain. Leaders throughout our state must work collaboratively to create sustainable change and make meaningful investments in our rural healthcare systems to ensure access to quality care is available to all communities across Indiana.” – Craig Kinyon, President and CEO of Reid Health​

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