Hospital margins improving but remain in red for 6th straight month

It’s been an ‘extremely challenging year’ for hospitals, according to Kaufman Hall’s latest report. Health systems probably can’t expect a turnaround in the near future.

Hospitals fared better financially in June than in May, but the first half of the year has been tough for health systems, Kaufman Hall reports.

Health systems saw their margins improve in June, but they were still in the red for the sixth consecutive month, according to Kaufman Hall’s new National Hospital Flash Report released today.

Hospital margins remain far below pre-pandemic levels, says Kaufman Hall, a consulting firm for health systems. Hospitals probably can’t look forward to a big rebound in the coming months, said Erik Swanson, a senior vice president of data and analytics at Kaufman Hall.

“To say that 2022 has challenged healthcare providers is an understatement,” Swanson said in a statement. “It’s unlikely that hospitals and health systems can undo the damage caused by the COVID waves of earlier this year, especially with material and labor costs at record highs this summer.”

The median Kaufman Hall Year-To-Date Operating Margin Index was -0.09% through June. Operating margins improved substantially from May (a 30.8% increase), but they were down 49.3% from June 2021, the report stated.

“U.S. hospitals and health systems are now halfway through an extremely challenging year,” the report stated. “While margins were up in June compared to May, expenses remain at historic highs, leaving hospitals with cumulatively negative margins.”

Kaufman Hall projects hospitals will likely continue to face financial difficulties for the rest of 2022.

“Although hospitals are seeing improved volumes and reduced expenses month-over-month, they will likely end up with historically low margins for the remainder of the year,” the report stated.

Hospitals and health systems saw an uptick in outpatient volume in June. Outpatient revenue rose 2.6% from May, and is 4.7% higher than in June 2021. Outpatient revenue has increased 7.8% year-to-date.

Inpatient revenue dropped 0.95 in June compared to May, but it is up 2.2% compared to June 2021, and it’s risen 4.6% year to date.

Operating room minutes rose 2.4% in June compared to May, but they are down 4.8% year-over-year. Patients’ length of stay fell 2.1% in June compared to the previous month, but it’s still 2.8% higher than in June 2021. Patient days declined 2.6% from May to June, but they are just slightly higher (0.5%) than in June 2021.

Emergency department visits dropped 2.6% from May to June, but they were 2.6% higher than in June 2021.

Total expenses dipped 1.3% in June compared to May, but they are 7.5% higher than in June 2021. Total costs have risen 9.5% year-to-date, with inflation and labor shortages fueling the higher expenses, according to the report.

Hospitals saw a 6.7% drop in labor expenses per adjusted discharge compared to May, but the costs are 13.4% higher year-to-date, the report stated. Throughout the pandemic, hospitals nationwide have been facing shortages of doctors, nurses and other critical healthcare workers, according to a federal report issued in May.

With inflation, hospitals are paying more for supplies. Hospital supply costs rose 4.6% from May to June, and are 3.3% higher than in June 2021. Drug costs increased 6.6% in June compared to May and are 1% higher than in June 2021.

Some hospitals may find it difficult to keep their doors open. Diane Swonk, chief economist and managing director at Grant Thornton, said in March that some hospitals, particularly in rural areas, are likely to go under. “We’re about to see a lot of hospitals close,” Swonk said at the HIMSS 2022 Global Health Conference & Exhibition.

Some analysts, including Kaufman Hall, have suggested some financially troubled hospitals may have to consider merging with other systems in order to stay afloat.