Hospitals improved in November, but remained in red for 11th straight month: Kaufman Hall

Health systems saw lower expenses, but expenses have surpassed revenues throughout the year.

Hospitals saw improved operating margins in November, but the modest gains did little to erase what has been a miserable year financially.

Health systems saw a slight reduction in expenses in November, according to Kaufman Hall’s latest National Hospital Flash Report, which was released Wednesday.

Revenues dropped slightly, but the reduced expenses led to improved margins. On the upside, hospital margins rose 12% compared to October.

Still, the median Kaufman Hall Year-To-Date Operating Margin Index was -0.2% through November. It’s the 11th consecutive month that the index has been in negative territory, according to Kaufman Hall, a healthcare consulting firm. Expenses have surpassed revenues throughout the year.

Hospitals continue to struggle with higher labor costs, said Erik Swanson, senior vice president of data and analytics for Kaufman Hall.

“As we’ve seen in other industries, the significant increases in labor costs have made it harder for hospitals to realize positive margins,” Swanson said in a statement. “Hospitals were fortunately relieved of some financial pressure in November amid a continued competition in the healthcare labor market, potentially due to a shift away from expensive contract labor.”

More than half of the nation’s hospitals were projected to finish 2022 with negative margins, Kaufman Hall projected. Kevin Holloran, senior director at Fitch Ratings, said 2022 was “one of the worst years ever in healthcare,” and he projected 2023 would be a challenging year for hospitals as well.

Labor expenses fell by 2% in November, although they are 9% higher year-to-date. Healthcare leaders across the country have said higher labor costs are contributing to their financial pressures, even as industry analysts say hospital leaders should budget for higher labor expenses in the future. Hospitals appear to be relying less on staffing agencies, which tend to be more costly.

The drop in labor costs, the reduction in volume and shorter hospital stays helped hospitals see a 1% decline in total expenses in November.

The average length of stay dropped 1% in November compared to October, and is 4% lower compared to November 2021. Hospital leaders have said they’ve seen sicker patients in recent months, requiring longer and more expensive treatment.

Hospitals continue to see improved outpatient revenue, one of the welcome bright spots for health systems over the past year. Outpatient revenue increased 10% compared to November 2021, although inpatient services continue to lag, remaining flat year-over-year.

“The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues, and rising interest rates,” Swanson said in a statement. “Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation.”

Operating room minutes fell 2% from October to November, and they are essentially flat year-to-date.

Hospitals saw a 3% increase in visits to the emergency department from October to November, and ED visits were 13% higher than in November 2021. Hospitals have seen a high number of patients with respiratory viruses such as RSV, the flu, and increasingly, COVID-19 cases.

The flash report includes data from more than 900 hospitals, Kaufman Hall said.