Today’s hospital leaders must walk a fine line, balancing increasing pressure to deliver top-notch patient care with the harsh reality of razor-thin profit margins. Even in stable economic conditions, hospital operating margins are thin — just 3.8%, according to Kaufman Hall’s May 2024 National Hospital Flash Report. (For context, that’s less than half of what restaurants — another notoriously tight-margin industry — typically earn.)
While a variety of factors make it difficult for hospitals to increase their operating margins, investing in technology can help address the issue and shape success for the future.
The obstacles to increasing hospital operating margins
Obstacles to increasing operating margins will only increase in the coming years. The biggest hurdles for hospitals include:
Labor Expenses
Labor expenses are one of the biggest drivers of hospital costs. Between 2021 and 2023, hospital labor expenses increased by more than $42 billion. This rise is partially driven by a shrinking workforce, and to attract new talent and retain existing staff, hospitals have had to increase wages significantly.
Regulatory Demands
Federal and state regulations, along with requirements from organizations like The Joint Commission, directly influence hospital revenue. Some laws impose price caps on certain procedures, others require price transparency, and many set strict limits on the reimbursement rates that providers and facilities can charge.
Rising Demand for Outpatient Care
At the same time, patient expectations are shifting. Increasingly, people prefer to receive care outside of traditional hospital settings. But while patients are eager to embrace these new care models, federal regulators and insurance companies have been slower to adapt, leaving hospitals to guess how — or if — they will be reimbursed for services delivered outside of their walls.
Cybersecurity Threats
Hospitals also face a growing cybersecurity crisis. Healthcare now leads all U.S. industries in costs associated with recovering from cyberattacks. A recent IBM report estimated that the average cost for a healthcare system to address a data breach was a staggering $9.8 million.
The Path Forward: Connected Technology Solutions
Hospitals have an impressive range of technology available to address problems, create process efficiencies, and improve operations — from real-time location systems (RTLS) to streamline equipment management to remote patient monitoring, OR scheduling software, and workforce management systems.
However, the challenge lies in the limited interoperability of these technologies. When systems don’t work together, hospitals can’t fully leverage the benefits of those tools or the data they provide.
To address this, hospitals must maximize their tech stack, rethink the structure for technology staff, invest in the infrastructure required to store and compute massive amounts of data, and protect that data with more potent cybersecurity measures.
By investing in independent but integrated technology solutions, hospitals can improve operational efficiency and unlock new opportunities for revenue growth, positioning themselves to thrive in the years ahead.
To learn more about maximizing the value of your tech stack through interoperability, download our white paper, “Transforming Hospitals for the Future: How Investments in Systems, Staffing and Security Will Shape Success in 2030.”
You’ll get insight into:
- How technology with open architecture can aid interoperability
- Considerations for investing in data infrastructure
- How AI can optimize processes
- How today’s technology investments will shape future success in healthcare
- And more.
