‘Difficult start’: Hospitals see negative margins for second straight month

Health systems are still trying to rebound after the surge of Omicron patients, according to a Kaufman Hall report. Hospitals are seeing losses in revenue while still battling higher expenses.

Hospitals have struggled financially in the beginning of 2022.

Hospital operating margins were in the red again in February 2022, according to a new report from Kaufman Hall. It’s the second consecutive month hospital operating margins were negative.

COVID-19 hospitalizations peaked in January 2022, with facilities being packed in the wake of the Omicron variant. While COVID-19 cases and hospitalizations dropped in February, outpatient volumes continue to lag. Hospitals continue to grapple with higher expenses and losses in revenue.

“Overall, the year is off to a difficult start,” according to the Kaufman Hall report.

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The median Kaufman Hall Operating Margin Index was -3.45% in February. It actually represents an improvement over January, when the index was -4.5%, but margins remain “well below sustainable levels,” according to the Kaufman Hall report.

Hospital operating margins had been positive for 11 consecutive months before January 2022.

Gross operating revenue fell 7.4% in February compared to January, according to the report.

In-patient revenue fell 19% in February compared to January, although it was about 1% higher than in February 2021, the report stated. Outpatient revenue dropped 5% in February month-over-month, but it was 9% higher than a year ago.

Healthcare officials said many of those infected with the Omicron variant weren’t staying in the hospital as long as those who contracted earlier variants. The average length of stay dropped 5.3% in February compared to January, but it was still 3.6% higher than in February.

Hospitals recorded a 13% drop in patient days in February compared to January, while emergency department visits fell 17% month over month.

Healthcare organizations paused some non-urgent surgeries and procedures during the Omicron surge, and some systems saw more surgeries in February. Operating room minutes rose 6.5% in February compared to January.

There was some improvement in expenses in February compared to January, although they remain higher than a year ago.

Total expenses per adjusted discharge dropped 4.5% in February compared to January, but they are still 10% higher than in February 2021 and about 31% higher than in 2020. Labor costs per adjusted discharge fell 6% in February month-over-month, but labor costs are 15% higher than in 2021 and 32% higher than in 2020.

Hospital leaders said they have battled higher labor costs during the pandemic, even as many have smaller workforces.

About 1 in 5 healthcare workers have left their jobs in the pandemic, according to a report from Morning Consult. Healthcare organizations have also said they have lost nurses who have opted to take more lucrative jobs at staffing agencies.

Some hospitals may be on the verge of closing for good due to their financial difficulties, Diane Swonk, chief economist at Grant Thornton, said at the HIMSS 2022 Global Health Conference.

“We’re about to see a lot of hospitals close,” Swonk said.

“That means a loss of access of care in areas that are underserved,” she added.

Rural hospitals are facing a particularly difficult time, some analysts project.  More than 500 rural hospitals are at immediate risk of closure due to financial losses, according to a recent report from the Center for Healthcare Quality and Payment Reform.