A new analysis from healthcare consulting firm Trilliant Health contains some grim news for people concerned about the plight of hospitals serving poorer and rural populations.
On average, in 2024, hospitals brought in just $311.9 million per year from patient care, and needed an average of $34.6 million from nonpatient sources, including grants, investments, and retail pharmacy operations, to balance the books.
But for nonprofit hospitals, the picture is still worse, with patient care making up an even smaller share of total revenue than at for-profit systems. The Trilliant analysis does not provide an exact breakdown but does note that “nonprofit hospitals had an average net patient revenue as a percentage of total revenue of 89.8% as compared to 97.6% for for-profit hospitals.” That indicates that they are much less able to finance their operations through patient care than the likes of for-profits, like hospital giant HCA.
Fewer than half of U.S. hospitals had a profit margin of more than 5% in 2023, and 39% lost money altogether.
In many cases, the outside revenue streams were the difference between staying open and shutting down.
“In 2024, 507 out of the 1,779 hospitals evaluated had a negative operating margin but positive net income due to revenue from non-patient-related activities,” Trilliant Health analysts wrote.
Even large nonprofit hospital systems face the same imbalance: Patient care alone often doesn’t cover the cost of operations, forcing them to rely on outside revenue to stay afloat.
At NYU Langone Hospitals, operating expenses exceeded patient revenue by roughly $825 million, yet the system still reported more than $500 million in net income — largely driven by nonpatient revenue. Vanderbilt University Medical Center showed a similar gap, with operating expenses exceeding patient revenue by about $856 million, but still posting a profit thanks to nonpatient income.
The problem is core to the business. Labor tied directly to patient care represented the largest share of hospital operating expenses, according to the study, with nonpatient-related labor costs half as much and drug costs even lower.
The statistics underscore the difficulty for providers to break even on the services they’re meant to deliver.
The data also underline a major reason policymakers intent on forcing through cuts to the 340B drug discount program can be expected to encounter steep opposition.
Many hospitals rely on revenue streams outside of patient care to stay afloat — an atmosphere that becomes more precarious if some funds are disrupted.
Under 340B, safety net hospitals, which disproportionately serve rural, working-class populations like those dominant in many red areas of America, are able to acquire drugs from pharmaceutical companies that participate in Medicare and Medicaid at a discount. They can then provide those drugs to patients on a discounted basis or sell them to better-off patients and use the price differential to cover other expenses accrued in keeping hospital doors open.
Drugmakers dislike the program because it cuts into profits. Defenders of 340B argue that pharma sector profits are already robust and that the program is an efficient way of keeping hospitals serving less well-off populations open and functional.
The Drug Pricing Program provided almost $100 billion in total benefits to 1,166 rural hospitals in 2022, according to the American Hospital Association. Rural hospitals used that money to fill in government funding gaps, including unreimbursed Medicaid and Medicare shortfalls.
The Medicare deficits are particularly disturbing for hospitals. The Centers for Medicare & Medicaid Services projected that negative Medicare margins at hospitals would increase from 79% in 2023 to 83%-85% in 2027.
It stands to reason that the hospitals would go to the federal government for help in plugging more financial gaps if that 340B program money disappeared or was severely curtailed. That would mean saddling taxpayers with more public debt in a hospital bailout.
Even 340B program opponents believe that any major program changes will lead to more taxpayer expenses.
Joe Grogan, a former assistant to President Donald Trump and a pharmacy executive, said that “some hospitals are going to be under pressure” if 340B is reformed in the way drug companies trade groups wish.
Grogan said the Catch-22 is that the federal government doesn’t “have the money to shore up community hospitals” and reform 340B. The price of a bailout, which would be needed to cover the financial hit to 340B hospitals if the changes Grogan favors were made, could be as high as $500 billion.
WINDS OF CHANGE IN LATIN AMERICA
An alternative might be to increase Medicare and Medicaid reimbursements, as the AHA has advocated. But an increase in entitlement spending along these lines would spike the deficit and national debt, which already is approaching $40 trillion. That, in turn, could sustain pressure on the Federal Reserve to keep interest rates high — something that Trump and Republicans definitely do not want.
This is the danger that 340B opponents find themselves confronting. While the chance for reform is tempting, especially to free-market purists, the idea of throttling healthcare in red states or adding to America’s debt and credit woes to procure a more favorable regulatory environment for drug companies is a tough political sell.
Taylor Millard is a Virginia-based writer and an editor and reporter at InsideSources.