Analysis: Health System Earnings Rebounded in 2018 but Remain Well Below 2015 Levels

John Wiest, Jeff Goldsmith, Alex Hunter, and Michele Mayes

Operating margins for major U.S. health systems rebounded in 2018 but remain an average of 30% below their 2015 levels, according to a new analysis from Navigant.

The study of four years of financial disclosures of 103 large health systems that own 44% of the country’s hospitals found:

  • Average operating margins rose by 13% in 2018 after a decline of more than 38% from 2015 to 2017. 
  • Sixty-four percent of systems improved their margins in 2018, a marked contrast to 2015 to 2017 when two-thirds experienced margin deterioration.
  • The most significant margin improvements from 2017 to 2018 were in the New England and South Central regions.

However, more than half of the sample remains below their 2015 operating margin levels by an average of 30%. Only in New England were margins higher than 2015 levels, and margins continued to decline in the Northeast, Southeast, and Midwest.

Health system margin improvement was driven by vigilance in expense control combined with a notable revenue turnaround. Revenue growth exceeded expense growth in 2018 for the first time in three years, with revenues growing at more than double the rate of expenses from 2017 to 2018.

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