Healthcare Finance- Week 1 Discussion Response

Healthcare Finance

Week 1 Discussion Respond

Respond to  at least two of your colleagues’ postings in one or more of the following ways:

· Expand on this Discussion by describing challenges associated with selecting the most critical areas of the MCR.

· Include how you might approach utilizing the MCR in an actual healthcare organization.

Colleague 1- Daniel James Tolas

Hi Everyone,

The institution I selected to analyze for this week’s discussion post is MultiCare Auburn Medical Center. MultiCare, Auburn is a medium sized hospital with 195 beds and provides services including level III Trauma and Level II neonatal intensive unit (MultiCare, 2026) MultiCare Auburn received 8,210 admissions and 45,000 Emergency department visits last year (MultiCare, 2026).  The three departments I will be looking at are the intensive care unit, labor and delivery department, lastly the laboratory.

1. Intensive Care.

For the fiscal year 2024, the intensive care unit’s gross revenue was $128,691,525 and their total expenses came in at $55,275,456 (WA DOH 2025). This leaves the intensive care department with a margin of 57%.

2. Labor and Delivery

For fiscal year 2024 the labor and delivery department made $35,424,006 in gross revenue. The units’ total expenses for the same year totaled $18,207,977. (WA DOH 2025). With this data in mind, we find that the profit margin for 2024 was 48%

 For fiscal year 2024 the laboratory gross revenue was $37,728,333. The units’ expenses for the year totaled in at 11,198,419 (WA DOH 2025). The profit margin for the laboratory in 2024 was about 71%

 The department that I would like to focus on is the Labor and delivery procedures as it may not be the most profitable of the three that I analyzed as it has a significant impact on the future income stream. Specifically, while the department is operating at a 48% profit margin which isn’t bad, larger trends in the US like declining birth rates due to factors like high cost of living and cost of child (Walsh R, 2026). For hospitals like MultiCare Auburn this means a decrease in patient volume, this then combined with the relatively high operating cost means it could be a department that ends up costing more to run than it can produce. A possible way of increasing revenue for the hospital might include regional partnerships to reduce operating costs on the main hospital. This could then allow the hospital to further specialize in higher levels of neonatal care.   

References:

Multicare. (2026).  By the numbers - organization facts - multicare. Organization Facts .  https://www.multicare.org/newsroom/organization-facts/Links to an external site.

CMS. (2026, April 30).  Cost reports. CMS.gov.  https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reportsLinks to an external site.    

WA DOH. (n.d.).  2024 hospital year end reports. 2024 Hospital Year End Reports.  https://doh.wa.gov/data-statistical-reports/healthcare-washington/hospital-and-patient-data/hospital-financial-data/year-end-reports/2024-hospital-year-end-reportsLinks to an external site.

Walsh, R. (2026, January 6).  Is the U.S. birth rate declining? | Johns Hopkins | Bloomberg School of Public Health. Does the U.S. Have a Fertility Crisis?  https://publichealth.jhu.edu/2026/is-the-us-birth-rate-decliningLinks to an external site.  

Colleague 2- Scott Randall Davis

MMHA 6400: Week 1 Discussion Post

 Hospitals are operating in a financial environment shaped by persistent inflation, constrained reimbursement, changing patient demographics, and the rapid migration of care from inpatient to outpatient settings. These conditions make the Medicare Cost Report a useful lens for identifying which trends are eroding hospital margins and which are supporting revenue growth.

Describe specific institution you identified:

The institution that I identified was Indiana University Health. The facility is located at 1701 North Senate Avenue, Indianapolis, Indiana 46202, which is part of Marion County Indiana. The hospital provider number is CCN-15-0056 and the Medicare Cost Report (MCR) period is from 01/01/2022 – 12/31/2022. Indiana University Health has 1,269 beds. Inpatient Days were reported at 56,696; Outpatient Visits reported were 30,394; with the total of all patients being 346,072 for the period noted above.

Economic Trends Contributing to Hospital Losses

Several economic trends are contributing to hospital losses. Labor cost inflation remains one of the most significant pressures because compensation and benefits represent a large share of total operating expenses, and clinical wage growth has remained elevated. The American Hospital Association (2026) reported that labor accounts for approximately 56% of hospital costs, illustrating how even modest wage increases can substantially weaken margins. At the same time, Medicare reimbursement has not kept pace with inflation, creating a persistent payment gap. According to the American Hospital Association (2026), Medicare reimbursed hospitals for only about 83 cents of every dollar spent in 2023, while payment updates lagged behind broader inflationary trends (Pink & Song, 2020).

Losses are further intensified by deterioration in payer mix, rising bad debt, greater patient acuity, and continued supply-related expense growth. As a larger share of patients are covered by government programs or remain uninsured, hospitals collect less net revenue per case than they would from commercially insured patients (Kaufman Hall, 2025; Pink & Song, 2020). Kaufman Hall (2025) also linked higher levels of bad debt and charity care to weaker financial performance, while Medicare Advantage payment practices can deepen losses when observation stays are extended and reimbursement falls short of actual treatment costs (National Association of Healthcare Revenue Integrity [NAHRI], 2025). Rising patient complexity and ongoing increases in drug, device, and supply expenses further add to these pressures (Healthcare Innovation, 2025; NAHRI, 2025).

Economic Trends Supporting Hospital Revenue

By contrast, several trends are helping hospitals generate revenue. The strongest driver is continued growth in outpatient volume, as more care is delivered in ambulatory and hospital outpatient settings rather than through traditional inpatient admissions. Kaufman Hall (2025) and Healthcare Innovation (2025) both reported sustained increases in outpatient activity, indicating that outpatient migration has become central to hospital revenue strategy. Revenue has also been supported by the recovery of elective and procedural volume after the most disruptive post-pandemic years, particularly as deferred care returned to the system (Healthcare Innovation, 2025).

Revenue performance is also supported by diversified service lines, better cost management, and modest payment updates in Medicare inpatient and outpatient systems. Hospitals with stronger margins tend to be more deliberate about service mix, expense control, and the use of more accurate costing methods to evaluate resource use and value across care settings, which allows them to better capture profitable demand (Beck da Silva Etges et al., 2020; Kaufman Hall, 2025). Annual payment updates within the inpatient prospective payment system and outpatient prospective payment system can provide incremental revenue support, although those increases are often insufficient to fully offset cost inflation (Milliman, 2025).

Macroeconomic Forces Shaping Hospital Financial Performance

From a macroeconomic perspective, hospitals are operating in an inflationary environment in which wages, pharmaceuticals, utilities, supplies, and capital costs are increasing faster than reimbursement. Tight labor markets have intensified these pressures by giving nurses, technicians, and other clinicians greater bargaining power, which raises compensation costs across the sector. In addition, Medicare functions as an administered-price system rather than a fully flexible market, so payment adjustments often occur more slowly than increases in underlying input costs (American Hospital Association [AHA], 2026; Getzen & Kobernick, 2022; Pink & Song, 2020).

Demographic and structural changes reinforce these pressures. An aging population increases demand for Medicare-covered services, but these patients are often reimbursed at lower rates than commercially insured patients, gradually shifting hospital payer mix over time. Hospitals have historically attempted to offset underpayment from public programs by negotiating higher commercial rates, but that cost-shifting strategy is becoming more difficult as employers and payers resist premium increases. At the same time, post-pandemic utilization patterns continue to accelerate the movement of care toward outpatient and ambulatory settings, reshaping the service mix on which hospitals depend for future revenue (AHA, 2026; Kaufman Hall, 2025).

Microeconomic Factors Influencing Hospital Margins

From a microeconomic perspective, hospital performance depends on the relationship between marginal cost and marginal revenue. A hospital loses money whenever the cost of treating an additional patient exceeds the reimbursement associated with that case. This becomes especially important when payer mix shifts toward Medicare, Medicaid, or uninsured patients, because average revenue per case declines even if service volume remains stable. Service-line profitability also matters, as outpatient procedures, imaging, and selected elective services often produce stronger contribution margins than complex inpatient care (Getzen & Kobernick, 2022; Pink & Song, 2020).

Hospitals are also influenced by their cost structure and market environment. Because they carry substantial fixed costs for facilities, technology, and around-the-clock staffing, weak reimbursement can quickly erode margins. Larger systems may benefit from economies of scale and scope by spreading overhead across more services and negotiating more effectively, while smaller hospitals are often more financially exposed. In addition, substitution effects are pushing many procedures into lower-cost outpatient settings, reducing higher-margin inpatient volume. Information asymmetry and third-party payment further distort normal consumer price sensitivity, and uncompensated care directly weakens margins because hospitals still absorb the full cost of treatment even when payment is not collected. More accurate costing methods, including time-driven activity-based costing, can help organizations identify waste, allocate resources more precisely, and support value-based management of inpatient care (Beck da Silva Etges et al., 2020; HFMA, 2025; Kaufman Hall, 2025).

Department specific analysis

Surgical Services/Operating Room

The primary procedural department responsible for generating the highest revenue within most facilities is Surgical Services. This is true for Indiana University Health during the reporting period of 01/01/22 – 12/31/22. Total operating costs for this period were $193,315,046.00. Inpatient charges were $727,525,654.00; outpatient charges were $493,402,259.00; totaling $1,220,927,912.00. This provided a cost ratio of 0.158335. Indiana University Health houses the only level 1 trauma program in the city as well as the largest transplant center in the state.

 Radiology-Diagnostic

The Diagnostic Radiology department is the second highest procedural revenue generating department within Indiana University Health. Total operating costs were $107,197,808.00 and the total reported charges were $763,535,067. This provided a cost ratio of 0.140397.

Laboratory

The Laboratory department is the third highest revenue generating department within Indiana University Health. Total operating costs were $101,180,882.00 and the total reported charges were $563,323,553.00. This provided a cost ratio of 0.179614.

Financial Implications

Overall, the evidence indicates that the central financial challenge facing hospitals is the widening gap between cost growth and reimbursement growth. Labor inflation, underpayment from public programs, rising uncompensated care, and a less favorable payer mix are placing sustained pressure on margins, while revenue growth is increasingly concentrated in outpatient expansion, procedural recovery, and service lines that perform better under current payment conditions (Getzen & Kobernick, 2022). From both macroeconomic and microeconomic perspectives, this reflects a health care market in which input costs are rising while output prices remain constrained by administered payment systems and competitive pressures (Healthcare Financial Management Association [HFMA], 2025). Hospitals that are best positioned for long-term stability will likely be those that expand high-demand outpatient services, manage costs carefully, and adapt their strategies to a reimbursement environment that rewards efficiency, scale, and ambulatory care growth (AHA, 2026; NAHRI, 2025; Pink & Song, 2020).

  Outpatient Service Lines

Hospital outpatient services—especially ambulatory surgery—are the strongest volume drivers of future income (HFMA, 2025; Kaufman Hall, 2025; Stout, 2025). Outpatient services matter most because that is where demand is shifting fastest. Kaufman Hall (2025) reported continued outpatient growth across hospitals, while Becker’s Hospital Review (2025) cited forecasts showing that outpatient care is expected to outpace inpatient growth over the next decade. As a result, a growing share of future demand will be concentrated in departments that capture ambulatory visits, procedures, diagnostics, and infusion-based care.

Outpatient volume is also strategically important because many migrated procedures generate stronger margins than comparable inpatient care. The Healthcare Financial Management Association (HFMA, 2025) noted that, for procedures such as hip and knee replacements, outpatient margins have remained positive while inpatient margins have turned negative in many cases. Hospitals are responding by directing investment toward outpatient access points, ambulatory surgery centers, and imaging platforms where future growth is most likely to occur (HFMA, 2025; Stout, 2025).

Primary Departmental Driver of Future Income

If one department must be identified, hospital outpatient services—especially ambulatory surgery—appear to have the greatest influence on a hospital’s future income stream (HFMA, 2025). However, the emergency department remains strategically important because it drives admissions, observation stays, imaging, and specialty referrals, even if it is not always the strongest margin generator on its own (Kaufman Hall, 2025).

References

American Hospital Association. (2026, March 9).  2025 cost of caring report. https://www.aha.org/guides-and-reports/2026-03-09-2025-cost-caring-report

Becker’s Hospital Review. (2025).  Where patient volumes are headed: 10 forecasts for 10 years out. https://www.beckershospitalreview.com/strategy/where-patient-volumes-are-headed-10-forecasts-for-10-years-out/

Beck da Silva Etges, A. P., Brasil Ruschel, K., Polanczyk, C. A., & Urman, R. A. (2020). Advances in value-based healthcare by the application of time-driven activity-based costing for inpatient management: A systematic review.  Value in Health, 23(6), 812–823.

Centers for Medicare & Medicaid Services. (n.d.).  Cost reports. https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reports

Healthcare Innovation. (2025).  Closer look: Health system operating margin trends and what’s behind them. https://www.hcinnovationgroup.com/finance-revenue-cycle/hospital-and-health-system-operations/article/55373362/closer-look-health-system-operating-margin-trends-and-whats-behind-them

Getzen, T. E., & Kobernick, M. S. (2022).  Health economics & financing (6th ed.). Wiley.

Healthcare Financial Management Association. (2025).  Hospitals see a margin advantage as care migrates to the outpatient department. https://www.hfma.org/finance-and-business-strategy/strategic-planning/hospitals-see-a-margin-advantage-as-care-migrates-to-the-outpatient-department/

Indiana Department of Health. (n.d.).  2022 hospital Medicare cost reports.  https://www.in.gov/health/cshcr/reports-on-health-care-facilities/hospital-reports/2022-hospital-medicare-cost-reports/

Kaufman Hall. (2025).  National hospital flash report: December 2025 data.  https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-december-2025-dataLinks to an external site.

Milliman. (2025).  2025 Medicare IPPS and OPPS trend summary. https://www.milliman.com/en/insight/2025-medicare-ipps-and-opps-trend-summary

National Association of Healthcare Revenue Integrity. (2025).  Report: Key trends impacting hospital financial stability in 2025. https://nahri.org/articles/report-key-trends-impacting-hospital-financial-stability-2025

Pink, G. H., & Song, P. H. (2020).  Gapenski’s understanding healthcare financial management (8th ed.). Health Administration Press.

Stout. (2025).  2025 trends in hospitals and health systems. https://www.stout.com/en/insights/article/2025-trends-hospitals-health-systems

Healthcare Finance

Week 1 Discussion Respond

Respond to  at least two of your colleagues’ postings in one or more of the following ways:

· Expand on this Discussion by describing challenges associated with selecting the most critical areas of the MCR.

· Include how you might approach utilizing the MCR in an actual healthcare organization.

Colleague 1- Daniel James Tolas

Hi Everyone,

The institution I selected to analyze for this week’s discussion post is MultiCare Auburn Medical Center. MultiCare, Auburn is a medium sized hospital with 195 beds and provides services including level III Trauma and Level II neonatal intensive unit (MultiCare, 2026) MultiCare Auburn received 8,210 admissions and 45,000 Emergency department visits last year (MultiCare, 2026).  The three departments I will be looking at are the intensive care unit, labor and delivery department, lastly the laboratory.

1. Intensive Care.

For the fiscal year 2024, the intensive care unit’s gross revenue was $128,691,525 and their total expenses came in at $55,275,456 (WA DOH 2025). This leaves the intensive care department with a margin of 57%.

2. Labor and Delivery

For fiscal year 2024 the labor and delivery department made $35,424,006 in gross revenue. The units’ total expenses for the same year totaled $18,207,977. (WA DOH 2025). With this data in mind, we find that the profit margin for 2024 was 48%

 For fiscal year 2024 the laboratory gross revenue was $37,728,333. The units’ expenses for the year totaled in at 11,198,419 (WA DOH 2025). The profit margin for the laboratory in 2024 was about 71%

 The department that I would like to focus on is the Labor and delivery procedures as it may not be the most profitable of the three that I analyzed as it has a significant impact on the future income stream. Specifically, while the department is operating at a 48% profit margin which isn’t bad, larger trends in the US like declining birth rates due to factors like high cost of living and cost of child (Walsh R, 2026). For hospitals like MultiCare Auburn this means a decrease in patient volume, this then combined with the relatively high operating cost means it could be a department that ends up costing more to run than it can produce. A possible way of increasing revenue for the hospital might include regional partnerships to reduce operating costs on the main hospital. This could then allow the hospital to further specialize in higher levels of neonatal care.   

References:

Multicare. (2026).  By the numbers - organization facts - multicare. Organization Facts .  https://www.multicare.org/newsroom/organization-facts/Links to an external site.

CMS. (2026, April 30).  Cost reports. CMS.gov.  https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reportsLinks to an external site.    

WA DOH. (n.d.).  2024 hospital year end reports. 2024 Hospital Year End Reports.  https://doh.wa.gov/data-statistical-reports/healthcare-washington/hospital-and-patient-data/hospital-financial-data/year-end-reports/2024-hospital-year-end-reportsLinks to an external site.

Walsh, R. (2026, January 6).  Is the U.S. birth rate declining? | Johns Hopkins | Bloomberg School of Public Health. Does the U.S. Have a Fertility Crisis?  https://publichealth.jhu.edu/2026/is-the-us-birth-rate-decliningLinks to an external site.  

Colleague 2- Scott Randall Davis

MMHA 6400: Week 1 Discussion Post

 Hospitals are operating in a financial environment shaped by persistent inflation, constrained reimbursement, changing patient demographics, and the rapid migration of care from inpatient to outpatient settings. These conditions make the Medicare Cost Report a useful lens for identifying which trends are eroding hospital margins and which are supporting revenue growth.

Describe specific institution you identified:

The institution that I identified was Indiana University Health. The facility is located at 1701 North Senate Avenue, Indianapolis, Indiana 46202, which is part of Marion County Indiana. The hospital provider number is CCN-15-0056 and the Medicare Cost Report (MCR) period is from 01/01/2022 – 12/31/2022. Indiana University Health has 1,269 beds. Inpatient Days were reported at 56,696; Outpatient Visits reported were 30,394; with the total of all patients being 346,072 for the period noted above.

Economic Trends Contributing to Hospital Losses

Several economic trends are contributing to hospital losses. Labor cost inflation remains one of the most significant pressures because compensation and benefits represent a large share of total operating expenses, and clinical wage growth has remained elevated. The American Hospital Association (2026) reported that labor accounts for approximately 56% of hospital costs, illustrating how even modest wage increases can substantially weaken margins. At the same time, Medicare reimbursement has not kept pace with inflation, creating a persistent payment gap. According to the American Hospital Association (2026), Medicare reimbursed hospitals for only about 83 cents of every dollar spent in 2023, while payment updates lagged behind broader inflationary trends (Pink & Song, 2020).

Losses are further intensified by deterioration in payer mix, rising bad debt, greater patient acuity, and continued supply-related expense growth. As a larger share of patients are covered by government programs or remain uninsured, hospitals collect less net revenue per case than they would from commercially insured patients (Kaufman Hall, 2025; Pink & Song, 2020). Kaufman Hall (2025) also linked higher levels of bad debt and charity care to weaker financial performance, while Medicare Advantage payment practices can deepen losses when observation stays are extended and reimbursement falls short of actual treatment costs (National Association of Healthcare Revenue Integrity [NAHRI], 2025). Rising patient complexity and ongoing increases in drug, device, and supply expenses further add to these pressures (Healthcare Innovation, 2025; NAHRI, 2025).

Economic Trends Supporting Hospital Revenue

By contrast, several trends are helping hospitals generate revenue. The strongest driver is continued growth in outpatient volume, as more care is delivered in ambulatory and hospital outpatient settings rather than through traditional inpatient admissions. Kaufman Hall (2025) and Healthcare Innovation (2025) both reported sustained increases in outpatient activity, indicating that outpatient migration has become central to hospital revenue strategy. Revenue has also been supported by the recovery of elective and procedural volume after the most disruptive post-pandemic years, particularly as deferred care returned to the system (Healthcare Innovation, 2025).

Revenue performance is also supported by diversified service lines, better cost management, and modest payment updates in Medicare inpatient and outpatient systems. Hospitals with stronger margins tend to be more deliberate about service mix, expense control, and the use of more accurate costing methods to evaluate resource use and value across care settings, which allows them to better capture profitable demand (Beck da Silva Etges et al., 2020; Kaufman Hall, 2025). Annual payment updates within the inpatient prospective payment system and outpatient prospective payment system can provide incremental revenue support, although those increases are often insufficient to fully offset cost inflation (Milliman, 2025).

Macroeconomic Forces Shaping Hospital Financial Performance

From a macroeconomic perspective, hospitals are operating in an inflationary environment in which wages, pharmaceuticals, utilities, supplies, and capital costs are increasing faster than reimbursement. Tight labor markets have intensified these pressures by giving nurses, technicians, and other clinicians greater bargaining power, which raises compensation costs across the sector. In addition, Medicare functions as an administered-price system rather than a fully flexible market, so payment adjustments often occur more slowly than increases in underlying input costs (American Hospital Association [AHA], 2026; Getzen & Kobernick, 2022; Pink & Song, 2020).

Demographic and structural changes reinforce these pressures. An aging population increases demand for Medicare-covered services, but these patients are often reimbursed at lower rates than commercially insured patients, gradually shifting hospital payer mix over time. Hospitals have historically attempted to offset underpayment from public programs by negotiating higher commercial rates, but that cost-shifting strategy is becoming more difficult as employers and payers resist premium increases. At the same time, post-pandemic utilization patterns continue to accelerate the movement of care toward outpatient and ambulatory settings, reshaping the service mix on which hospitals depend for future revenue (AHA, 2026; Kaufman Hall, 2025).

Microeconomic Factors Influencing Hospital Margins

From a microeconomic perspective, hospital performance depends on the relationship between marginal cost and marginal revenue. A hospital loses money whenever the cost of treating an additional patient exceeds the reimbursement associated with that case. This becomes especially important when payer mix shifts toward Medicare, Medicaid, or uninsured patients, because average revenue per case declines even if service volume remains stable. Service-line profitability also matters, as outpatient procedures, imaging, and selected elective services often produce stronger contribution margins than complex inpatient care (Getzen & Kobernick, 2022; Pink & Song, 2020).

Hospitals are also influenced by their cost structure and market environment. Because they carry substantial fixed costs for facilities, technology, and around-the-clock staffing, weak reimbursement can quickly erode margins. Larger systems may benefit from economies of scale and scope by spreading overhead across more services and negotiating more effectively, while smaller hospitals are often more financially exposed. In addition, substitution effects are pushing many procedures into lower-cost outpatient settings, reducing higher-margin inpatient volume. Information asymmetry and third-party payment further distort normal consumer price sensitivity, and uncompensated care directly weakens margins because hospitals still absorb the full cost of treatment even when payment is not collected. More accurate costing methods, including time-driven activity-based costing, can help organizations identify waste, allocate resources more precisely, and support value-based management of inpatient care (Beck da Silva Etges et al., 2020; HFMA, 2025; Kaufman Hall, 2025).

Department specific analysis

Surgical Services/Operating Room

The primary procedural department responsible for generating the highest revenue within most facilities is Surgical Services. This is true for Indiana University Health during the reporting period of 01/01/22 – 12/31/22. Total operating costs for this period were $193,315,046.00. Inpatient charges were $727,525,654.00; outpatient charges were $493,402,259.00; totaling $1,220,927,912.00. This provided a cost ratio of 0.158335. Indiana University Health houses the only level 1 trauma program in the city as well as the largest transplant center in the state.

 Radiology-Diagnostic

The Diagnostic Radiology department is the second highest procedural revenue generating department within Indiana University Health. Total operating costs were $107,197,808.00 and the total reported charges were $763,535,067. This provided a cost ratio of 0.140397.

Laboratory

The Laboratory department is the third highest revenue generating department within Indiana University Health. Total operating costs were $101,180,882.00 and the total reported charges were $563,323,553.00. This provided a cost ratio of 0.179614.

Financial Implications

Overall, the evidence indicates that the central financial challenge facing hospitals is the widening gap between cost growth and reimbursement growth. Labor inflation, underpayment from public programs, rising uncompensated care, and a less favorable payer mix are placing sustained pressure on margins, while revenue growth is increasingly concentrated in outpatient expansion, procedural recovery, and service lines that perform better under current payment conditions (Getzen & Kobernick, 2022). From both macroeconomic and microeconomic perspectives, this reflects a health care market in which input costs are rising while output prices remain constrained by administered payment systems and competitive pressures (Healthcare Financial Management Association [HFMA], 2025). Hospitals that are best positioned for long-term stability will likely be those that expand high-demand outpatient services, manage costs carefully, and adapt their strategies to a reimbursement environment that rewards efficiency, scale, and ambulatory care growth (AHA, 2026; NAHRI, 2025; Pink & Song, 2020).

  Outpatient Service Lines

Hospital outpatient services—especially ambulatory surgery—are the strongest volume drivers of future income (HFMA, 2025; Kaufman Hall, 2025; Stout, 2025). Outpatient services matter most because that is where demand is shifting fastest. Kaufman Hall (2025) reported continued outpatient growth across hospitals, while Becker’s Hospital Review (2025) cited forecasts showing that outpatient care is expected to outpace inpatient growth over the next decade. As a result, a growing share of future demand will be concentrated in departments that capture ambulatory visits, procedures, diagnostics, and infusion-based care.

Outpatient volume is also strategically important because many migrated procedures generate stronger margins than comparable inpatient care. The Healthcare Financial Management Association (HFMA, 2025) noted that, for procedures such as hip and knee replacements, outpatient margins have remained positive while inpatient margins have turned negative in many cases. Hospitals are responding by directing investment toward outpatient access points, ambulatory surgery centers, and imaging platforms where future growth is most likely to occur (HFMA, 2025; Stout, 2025).

Primary Departmental Driver of Future Income

If one department must be identified, hospital outpatient services—especially ambulatory surgery—appear to have the greatest influence on a hospital’s future income stream (HFMA, 2025). However, the emergency department remains strategically important because it drives admissions, observation stays, imaging, and specialty referrals, even if it is not always the strongest margin generator on its own (Kaufman Hall, 2025).

References

American Hospital Association. (2026, March 9).  2025 cost of caring report. https://www.aha.org/guides-and-reports/2026-03-09-2025-cost-caring-report

Becker’s Hospital Review. (2025).  Where patient volumes are headed: 10 forecasts for 10 years out. https://www.beckershospitalreview.com/strategy/where-patient-volumes-are-headed-10-forecasts-for-10-years-out/

Beck da Silva Etges, A. P., Brasil Ruschel, K., Polanczyk, C. A., & Urman, R. A. (2020). Advances in value-based healthcare by the application of time-driven activity-based costing for inpatient management: A systematic review.  Value in Health, 23(6), 812–823.

Centers for Medicare & Medicaid Services. (n.d.).  Cost reports. https://www.cms.gov/data-research/statistics-trends-and-reports/cost-reports

Healthcare Innovation. (2025).  Closer look: Health system operating margin trends and what’s behind them. https://www.hcinnovationgroup.com/finance-revenue-cycle/hospital-and-health-system-operations/article/55373362/closer-look-health-system-operating-margin-trends-and-whats-behind-them

Getzen, T. E., & Kobernick, M. S. (2022).  Health economics & financing (6th ed.). Wiley.

Healthcare Financial Management Association. (2025).  Hospitals see a margin advantage as care migrates to the outpatient department. https://www.hfma.org/finance-and-business-strategy/strategic-planning/hospitals-see-a-margin-advantage-as-care-migrates-to-the-outpatient-department/

Indiana Department of Health. (n.d.).  2022 hospital Medicare cost reports.  https://www.in.gov/health/cshcr/reports-on-health-care-facilities/hospital-reports/2022-hospital-medicare-cost-reports/

Kaufman Hall. (2025).  National hospital flash report: December 2025 data.  https://www.kaufmanhall.com/insights/research-report/national-hospital-flash-report-december-2025-dataLinks to an external site.

Milliman. (2025).  2025 Medicare IPPS and OPPS trend summary. https://www.milliman.com/en/insight/2025-medicare-ipps-and-opps-trend-summary

National Association of Healthcare Revenue Integrity. (2025).  Report: Key trends impacting hospital financial stability in 2025. https://nahri.org/articles/report-key-trends-impacting-hospital-financial-stability-2025

Pink, G. H., & Song, P. H. (2020).  Gapenski’s understanding healthcare financial management (8th ed.). Health Administration Press.

Stout. (2025).  2025 trends in hospitals and health systems. https://www.stout.com/en/insights/article/2025-trends-hospitals-health-systems