Hospital margins mired in red for 5th straight month: Kaufman Hall

Even with some improved financial performance in May, the outlook for the rest of the year remains uncertain, the firm says.

Hospitals bounced back a bit financially in May, but their performance still remains well below pre-pandemic levels, according to a new report from Kaufman Hall.

Even with a recovery in May, hospital margins remained in the red for the fifth straight month. The Kaufman Hall Year-to-Date Operating Margin Index was 0.33% through May.

Hospitals have faced a difficult year financially, exacerbated by the record high COVID-19 hospitalizations in the beginning of the year. Kaufman Hall has said health systems are looking at a lengthy recovery.

“While some metrics have normalized, hospitals continue to perform below pre-pandemic levels,  and there is an uncertain outlook for the rest of the year,” the report stated.

Hospitals continue to face formidable economic headwinds, said Erik Swanson, a senior vice president of data and analytics with Kaufman Hall.

“While we are seeing hospitals revenues inch up, it simply is not enough to mitigate the skyrocketing costs of material and labor expenses, resulting in negative operating margins for the nation’s hospitals and health systems,” Swanson said in a statement.

“Hospitals are seeing labor costs increase at every level as they compete with other hospitals and local employers to retain and attract non-clinical staff with higher wages and better benefits," he said.

Kaufman Hall’s operating margin index had remained positive for 11 consecutive months before beginning a five-month slide in January 2022.

Labor costs continue to post problems for health systems, the report said. Hospitals are seeing higher labor costs even with fewer hours worked from staff, indicating that health systems continue to struggle with staffing shortages and higher turnover.

Labor expenses per adjusted discharge increased 1% from April to May, but those costs have risen by 13.6% so far in 2022, the report stated. Total expenses rose 1% month-over-month and have jumped 10.7% since May 2021.

Hospitals did see an uptick in patient volume in May. More people appeared in the emergency department as the weather gets warmer and people spend more time outdoors. Emergency department visits rose 9.5% from April to May and were also up 4.5% compared to May 2021.

Patients also had a longer length of stay, which rose 2.3% from April to May and 5.5% year-over-year. Patient days rose 4.8% from April to May, but dipped slightly (0.5%) compared to May 2021.

Operating room minutes dropped 1% in May compared to the previous month and were just barely higher (0.1%) than May 2021.

Hospitals did see a bump in revenue in May. Gross operating revenue rose 3.4% from April to May and is 7.6% higher than in May 2021.

Outpatient revenue rose 2.2% from April to May and has risen 9.1% since the beginning of January. Outpatient revenue is 9.4% higher than May 2021.

Inpatient revenue increased 3.5% in May compared to the previous month and was 2.6% higher than May 2021. It was also 4.2% higher year-to-date.

Hospitals are also seeing more people schedule procedures they have delayed due to the COVID-19 pandemic.

“Sicker patients continued to schedule procedures they had previously postponed, suggesting a return to normalcy as COVID-19 hospitalizations remained relatively low,” the report stated.

Hospitals and health systems are also dealing with the challenges of inflation.

Supply costs rose 2.7% from April to May and have increased 8.6% year-over-year. Supply expenses have surged 37.5% since May 2020.

Drug expenses rose 3.9% month-over-month and are 5.2% higher than in May 2021. Drug expense have also climbed 29.4% since May 2020.