'Devastating': Hospitals saw steep decline in margins in January

For the first time in 11 months, hospital margins were negative, according to a new report by Kaufman Hall. A wave of COVID-19 patients took a toll, and a pause in non-urgent procedures hurt revenue.

Many hospitals took a beating financially in the first month of 2022.

The Omicron variant led to record hospitalizations in January, and hospital operating margins dropped for the first time in 11 months, according to a new report from Kaufman Hall. Hospitals dealt with higher expenses, less revenue and a drop in outpatient volume.

"The first month of 2022 was devastating for hospitals and health systems nationwide as they were hit full force by the Omicron tidal wave," the report stated.

The median change in operating margins dropped 71.3% from December to January (that excludes federal CARES aid). Compared to January 2021, the median operating margin dropped 23.7%.

Hospitals saw many COVID-19 patients discharged in the latter part of January, and COVID-19 hospitalizations have dropped substantially in recent weeks.

"Consistent with past surges, hospital performance likely will stabilize somewhat in coming months as a result, but January’s losses could have repercussions throughout 2022," the report stated.

Many patients postponed procedures and services that weren’t related to COVID-19, or avoided seeking healthcare.

Outpatient revenue fell 7.5% from December to January, leading to a 4.7% drop in gross operating revenue month-to-month, excluding CARES aid. There was a 2.7% increase in in-patient revenue in January compared to December, but that didn’t do enough to offset the drop in outpatient volume.

Many providers also suspended non-urgent procedures in response to the flood of COVID-19 patients, which also translates to a loss in revenue. The suspension of elective procedures can be seen in the drop in operating room minutes, which declined 15.7% in January, compared to December.

Emergency department visits also dropped 1.4% in January compared to December, but they were 20.7% higher than in January 2021.

Many of those going to the hospital in January were staying longer, according to the report. The average length of stay rose 8.6% in January compared to December, and it was 4.9% higher than January 2021. Patient days rose 1.7% from December to January; they were 2.1% higher than in January 2021.

Total expense per adjusted discharge rose 11.6% from December to January, and labor expenses per discharge rose 14%. Year over year, labor costs per discharge are 14% higher than in January 2021, even with reduced staffing levels compared to a year ago.

“These trends reflect the impacts of wage pressures as hospitals compete in a tight labor market,” the report stated.

Many healthcare organizations have said staffing shortages emerged as one of the biggest problems in the Omicron wave. About 1 in 5 healthcare workers have left their jobs during the COVID-19 pandemic, according to a Morning Consult report.

Healthcare organizations may face more staffing issues in the near future. At least 1 in 5 doctors and 40% of nurses say they plan to leave their jobs in the next two years due to the stress and fatigue of the pandemic, according to a study published in Mayo Clinic Proceedings.