Hospitals in ‘precarious financial position’, see 10th month in red

Health systems continue to struggle with higher expenses, including rising labor costs, according to the latest monthly report from Kaufman Hall.

Hospitals have struggled mightily with disappointing finances throughout 2022, and it appears the final quarter of the year isn’t providing any relief.

Health systems suffered a decline in operating margins in October, according to Kaufman Hall’s latest National Hospital Flash Report, which was released Wednesday. Hospitals also continue to face higher expenses, especially in competing for workers in a tight labor market.

Kaufman Hall’s year-to-date operating margin index for hospitals was -0.5% through October. It’s the 10th consecutive month Kaufman’s Hall’s index was in negative territory.

“Record-high expenses across the economy have not eased up, leaving hospitals in a precarious financial position as we look to the end of the year,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement. “With the labor market in the healthcare sector still highly competitive, hospitals are feeling the financial pressure of needing to attract and retain workers with significant increases in salaries.”

Hospitals have been battling higher expenses and inconsistent volume throughout the year. More than half of all hospitals could finish the year in negative margins, according to a Kaufman Hall analysis prepared for the American Hospital Association. Hospitals have faced the most difficult financial year of the COVID-19 pandemic, as they haven’t been buoyed by federal pandemic aid as they were in 2020 and 2021.

Operating margins for hospitals dropped 2% from September to October, and they are down 13% compared to October 2021, according to the report.

Labor expenses rose 3% from September to October, and have risen 10% year-to-date. Total expenses rose 1% from September to October and have increased 8% since the beginning of the year.

“Every aspect of patient care—from being admitted, to treatment, to discharge—is affected by the labor shortage and as we head into the virus season and potential new waves of COVID-19 the pressures on hospitals and their staff could mount,” Swanson said in a statement. “The October data reinforce what we have known for several months, 2022 has been and will continue to be a very difficult financial year for the nation’s hospitals.”

Hospitals have been struggling to retain nurses, as many have left their jobs due to the pandemic. Nursing leaders have called on hospitals to improve their working environments to give nurses a reason to stay..

Health systems are also turning to contractors for assistance with information technology and human resources because they’re having trouble filling openings, and that’s adding to their expenses, the report stated.

Hospitals saw an uptick in emergency department visits and operating room minutes in October. Emergency department visits rose 3% from September to October, while operating room minutes increased by 2% from September to October.

Even as health systems saw more patients coming into their emergency departments, some facilities couldn’t admit patients due to staffing shortages. “Many hospitals were forced to board patients in the ED leading to increased pressure on ED staff,” the report stated.

Hospitals are keeping patients longer, as the average length of stay for patients rose 3% from September to October. But hospitals aren’t really seeing any financial gains from those longer stays. In some instances, hospitals are keeping patients even when they’re ready to be discharged, but they are continuing to house patients because of staffing shortages at rehabilitation centers or long-term care facilities.

Kaufman Hall’s monthly report incorporates data from more than 900 hospitals nationwide. Syntellis Performance Solutions provided the data.