Hospitals losing billions in 2022, more than half could have negative margins

It looks to be the worst financial year for hospitals since the pandemic began, according to a new report released by the American Hospital Association.

Hospitals and health systems have suffered substantial losses so far in 2022, and a new report suggests their financial outlook could get worse.

The American Hospital Association released a report Thursday outlining the grim financial outlook for hospitals for the rest of the year. Kaufman Hall, the healthcare consulting firm, prepared the report.

Many hospitals have already been operating in the red through 2022. The report indicated a turnaround this year isn’t likely.

More than half of U.S. hospitals (53%) are projected to have negative margins for the rest of the year, according to the report. Under more pessimistic scenarios, more than two-thirds of hospitals (68%) could have negative margins this year, the report stated.

“Hospitals stand to lose billions of dollars in 2022,” said Lisa Goldstein, senior vice president of Kaufman Hall.

Margins will remain depressed for the remainder of the year, and hospitals are looking at their worst financial year since the arrival of the COVID-19 pandemic, Golstein said. Health systems are wrestling with staff shortages, higher labor and supply costs, and shaky supply chains.

Rick Pollack, president of the AHA, said in a media call that hospitals can’t keep enduring such losses indefinitely. Congress and President Biden’s administration must offer more support to hospitals, he said.

“This deserves the immediate attention of policy makers at every level of government,” Pollack said, adding, “America can’t be strong without hospitals being strong.”

Pollack and other hospital leaders on the call emphasized they are treating plenty of COVID-19 patients, even if hospitalizations are well below the peak of last winter. More than 32,000 COVID-19 patients are being treated in hospitals, according to The Washington Post. Hospitals are also seeing more patients who delayed treatment for other health problems during the pandemic.

“We’re seeing people that are much sicker than in the past, and that means they’re more expensive to treat,” Pollack said.

John J. Lynch III, president and CEO of Main Line Health in the Philadelphia area, said his system has lost $102 million in 2022, even after factoring in federal CARES aid. “These losses are unsustainable,” he said during the media call.

Hospitals are being squeezed, Pollack said. In the beginning of the year, he said the top three concerns of hospital officials were “workforce, workforce, and workforce.”

Now, Pollack said, the top three worries are “financial stability, financial stability, and financial stability.”

“We are now dealing with the aftershocks and the aftermath of the most significant public health crisis in a century,” Pollack said. “America’s hospitals are under severe financial pressure.”

‘The crisis is real’

Hospitals have been confronting much higher expenses this year. Hospitals’ expenses are projected to rise $135 billion in 2022, compared to the previous year, according to the report. Labor accounts for the bulk of the increase, a projected $86 billion, with non-labor expenses rising $49 billion.

Much of the higher labor costs are driven by their employees: a projected $57 billion increase in 2022. But contract staff, including travel nurse agencies, are taking a toll, too, with a projected $29 billion increase. The AHA and other groups have previously asked lawmakers to investigate nurse staffing agencies to see if they’re engaging in price gouging.

Hospital leaders who participated in the media call all said they are struggling to find talent.

Mike Slubowski, president and CEO of Trinity Health, the nonprofit system based in Michigan, said his organization is struggling to fill openings in the 25 states it serves.

“The crisis is real,” Slubowski said. “The shortage of healthcare workers is nothing like we’ve seen before.”

At Main Line Health in the Philadelphia region, Lynch said, “We are experiencing one of the greatest workforce challenges we have ever seen.”

Peggy Abbott, CEO of Ouachita County Medical Center, said the labor crisis is particularly difficult for her rural health organization in Arkansas.

“There is absolutely a shortage of staff availability,” Abbott said. The shortage includes nurses, respiratory therapists and radiologists, she said.

“The small independent hospitals are challenged as never before,” she said.

The labor shortages are forcing hospitals to close beds and scale back some services, hospital leaders said. Hospitals are seeing longer waits in emergency departments, and surgeries and other procedures are being delayed.

Ultimately, patients are paying the price, hospital leaders said.

While hospital executives cite labor challenges as a pressing concern, they are facing higher costs for supplies, largely driven by inflation, the report stated.

The report cited optimistic and pessimistic scenarios for operating margins, but even the better forecast isn’t exactly cheery.

Under more optimistic scenarios, hospital margins in 2022 will be 37% lower than before the pandemic. The more dire forecast, which would include new surges of COVID-19 patients and higher expenses, would see margins fall 133% below pre-pandemic levels this year.

Seeking help from Washington

Lawmakers and the White House need to step up and offer more aid to hospitals, Pollack said.

While he acknowledged federal CARES aid was “a lifeline” to hospitals, Pollack said the administration and Congress needs to offer more help.

Citing a recurring complaint, Pollack said the government hasn’t provided any money - “not a dime” - to help hospitals deal with the surges of the Delta and Omicron variants. And those surges accounted for half of Americans hospitalized due to COVID, he said.

In the near term, the AHA and other healthcare groups are pressing Congress to preserve two Medicare funding programs for rural hospitals that are set to expire this month. Those programs offer $600 million annually to rural hospitals. Lawmakers have moved bills to extend the program.

Rural hospitals are on “life support” and more could close unless policymakers act, the AHA said in a report released last week.

Congress also can help hospitals by approving extensions of telehealth waivers, Pollack said. Lawmakers have pushed a bill that would extend telehealth waivers for two years, though some advocates would like to see permanent extensions for virtual care.

Pollack and healthcare groups are urging Washington to restore planned cuts for Medicare. The cuts are expected under a federal spending law that imposes spending reductions when Congress can’t agree on budgets.

Hospitals are also hoping the Senate will pass a bill to reform prior authorization in Medicare Advantage plans. The measure, which passed the House Wednesday, would streamline the authorization process, which hospitals and doctors said delays patient care and adds to staff burnout.