Hospitals are the largest single line in US health spending (roughly a third of national health expenditure, ~$1.6 trillion a year; verify latest CMS figure), the largest private employers in many American cities, and the institutions every other part of healthcare has to sell to, contract with or compete against. They are also economically odd: most are nonprofit, they must treat anyone who arrives in the emergency department, they are paid different prices by different payers for the same service, and a typical one earns a thin operating margin that swings with labor costs, payer mix and policy. This section explains how hospitals and health systems make and lose money: ownership models (nonprofit, for-profit, public, academic), payer mix and the "cost shift," the drivers of margin, consolidation and its effect on prices, rural closures, the 340B drug discount program, and the policy and capital forces that will shape them through the late 2020s. A worked example computes a stylized hospital's margin under payer-mix, Medicaid and labor shocks.
What the study covers
- 1Overview: what a hospital is, economically
- 2Mechanics: how hospitals get paid
- 3Consolidation and market power
- 4Rural and safety-net hospitals
- 5The 340B Drug Pricing Program
- 6Costs, capital and the forces reshaping hospitals
- 7Key numbers
- 8Landmark companies and cases
- 9Pitfalls
- 10How an expert thinks about it
- 11Glossary
Technical exhibits
Worked examples, checklists and case studies included with this study.
Hospital Payer Mix and Margin Worked Example
A stylized $1B-cost community hospital: payment-to-cost ratios by payer, operating margin, six shocks (payer mix, Medicaid cuts, MA denials, labor, commercial rates, 340B) and the commercial price rise needed to offset them, plus a 340B single-drug example (computed by script)
Hospital Financial Diligence Checklist
Questions for investors, lenders, acquirers, board members and vendors assessing a hospital or health system