Senior VP and Data Analytics Group Leader at Kaufman Hall Notes Supply Chain Challenges for 2025

On Dec. 13, Healthcare Innovation Editor-in-Chief Mark Hagland published an article entitled, “Kaufman Hall’s Swanson on This Current Moment of Hospital Financial Stability.”

Hagland spoke with Erik Swanson, senior vice president and Data Analytics Group leader at Kaufman Hall about this report, including his outlook for supply chain.

Hagland wrote, “Hospitals’ financial and operational performance remained stable in October, with key indicators including revenue, operating margins, and the average length of patient stay generally holding steady, according to the most recent ‘National Hospital Flash Report’ from the Chicago-based consulting and advisory firm Kaufman Hall, a Vizient company.”

Hagland continued, “According to the report, published on Dec. 9 and posted to the firm’s website, the mean operating margin for hospitals in October was 4.4%, up slightly from the 4.3% mean operating margin in April through September. Indeed, hospital operating margins have been stable all year; in January, the mean operating margin was 4.9%; in February, 4.4%, and in March, 4.2%. All of the 2024 mean operating margins have been considerably higher than in November and December 2023, when they were 2.5% and 2.7%.”

Regarding supply chain, Hagland asked Swanson about what the financial landscape might look like for hospitals in 2025. Swanson said, “I do try to be careful about being overly predictive. But if the trends we’ve observed thus far continue as they have been, you’ll continue to see some general improvement over the course of 2025, but not markedly so. Organizations are still seeing drug and supply cost issues, and reimbursement concerns. But some of this stability is allowing organizations to better manage their resources. And those that can are thinking about their outpatient/ambulatory footprints—areas that tend to be able to generate some margin. So we’re likely to see some continued improvement, though gradual. I think it will be slow, gradual movement.”

Hagland also asked Swanson about traveling/agency nurses during the COVID-19 pandemic and if the situation had improved, financially speaking. Swanson commented, “Yes, it was an absolute killer. The data are very clear, and our discussions with clients are clear, that that reliance on contract labor has diminished substantially. It’s still higher than in the past, but it’s been reduced substantially since its peak in 2022. And because the demand has gone down, the rates that agencies could charge, have decreased as well. So we’re seeing reductions both in the volume of agency nursing and in the rates charged. Now, for a number of months, we’ve seen a reduction of FTEs per AOB, actively occupied bed. So some of those nurses from agencies are becoming reemployed by the hospitals. And on an overall basis, that has lowered or at least attenuated the growth in labor expense. Still, overall FTEs per AOB is still extremely lean. So we’re still operating in a mode of staffing shortage. So there is certainly some relief on that contract employment side, but still a very lean operation from at least a nursing perspective.”

And finally, Hagland questioned Swanson about the challenges surrounding supply costs right now. Swanson noted, “Let me put it this way: it appears that many of the headwinds upcoming will be around the non-labor side. All of these expenses have a significant impact. If non-labor is about 50 percent of your total cost and supplies and drugs make up a significant portion of that, that’s meaningful.”

"And as the population ages, that’s leading to and requiring specialty pharmaceuticals: chemotherapy drugs, etc.,” he said. “That will continue to provide some pressure; and as the population ages, on a long-term basis, we expect the acuity in hospitals to rise, as patients move into outpatient settings. So not only will the prices of drugs and supplies increase, but the utilization will increase. And unlike labor, the ability to effect change in terms of price and utilization, is quite slow. So this is not something that organizations can be incredibly nimble with; so supply and drug and purchased services, will continue to be a strong challenge.”

The article referenced in this story originally ran as “Kaufman Hall’s Swanson on This Current Moment of Hospital Financial Stability” on Healthcare Innovation, an Endeavor Business Media partner site.