August 2018
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National Profitability Observations
The report shows good profitability in the sector for the third consecutive month. Performance is favorable compared to both the prior year and current budget. Despite a 3 percent year-over-year decline in net revenue per adjusted discharge, these positive trends are being driven by a strong 7 percent reduction in year-over-year expenses per adjusted discharge. Performance in labor expense management and purchased service expense management was particularly strong. However, July’s performance did deteriorate slightly from June, with operating EBITDA margin declining 101 bps and Operating Margin declining 111 bps.
Despite solid performance, there are two areas of concern:

1. The strong profitability performance appears to be untenable as management will be challenged to continue the trend of reducing operational expenses at a faster rate than declining revenues. Without incremental and new sources of revenue, the profitability of the nation’s hospitals will be under pressure.

2. The actual performance to budget remains variable. While favorable performance to budget may be interpreted as a positive, profitability that is 10 percent to 20 percent favorable to budget indicates a lack of precision during the budget process. This inaccuracy can result in an imprecise use of resources that could be avoided if organizations budgeted more accurately. Organizations may want to consider a “goldilocks target” performance to budget, whereby the target for actual performance to budget is within +-5 percent (not too low and not too high).
Profitability % Change
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National Observations
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By Region
National Observations
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National Hospital Flash Report
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