Hospitals performed better in 2021 than 2020, but still face higher costs

The financial picture improved somewhat, but hospitals still are dealing with plenty of headwinds, according to a new Kaufman Hall report.

With COVID-19 cases spiking in December, hospitals ended the year with much higher volumes, but are still struggling with higher costs and supply issues, according to a new report from Kaufman Hall.

The healthcare consulting firm’s latest “National Hospital Flash Report”, issued Jan. 31, looks at the month of December and puts 2021 in perspective.

Overall, hospitals generally performed better financially in 2021 than the previous year. In some ways, it would have been hard for hospitals not to improve, since many facilities stopped elective procedures for weeks and even months in 2020.

But hospitals still haven’t returned to pre-pandemic levels in terms of their finances, the report said.

The median change in operating margin rose 38% from November to December, excluding federal CARES relief aid. For the year, the median change in margins for hospitals (excluding the CARES aid) rose 44.8% in 2021 compared to 2020, but was still 3.9% below 2019.

With the omicron variant surging across America and triggering the highest level of hospitalizations of the pandemic, hospitals predictably saw increased volume. Emergency department visits rose 7% in December compared to January, while adjusted patient days rose 3.9%.

At the same time, some people may have been delaying treatment for issues unrelated to COVID-19, the report suggested. Operating room minutes didn’t see an increase in December compared to November, suggesting at least some people opted to defer care or stayed away from hospitals that were filling up with COVID-19 patients.

Hospitals saw patients with more serious illnesses necessitating longer stays in 2021 compared to 2020, the report found. In 2021, adjusted patient days rose 11.8%, adjusted discharges were 6.9% higher, and the average length of stay rose 3.5%, the report found.

In addition, emergency department visits rose 10.9% and operating room minutes rose 8.3%, the report said.

Hospital revenues rose again in December and were higher in 2021 than in the previous two years. Gross operating revenues rose 4.4% compared to November, and were up 14.7% for all of 2021 compared to 2020. They were also 12.1% higher than revenues in 2019. (All of those revenue figures exclude federal CARES aid).

Labor expenses per discharge rose 4.6% in 2021 compared to 2020.

But the labor cost differences are most stark when compared to 2019, the Kaufman Hall report said. Comparing 2021 to 2019, total expenses per adjusted discharge rose 20.1%, and labor expenses per discharge surged 19.1%.

Hospital officials have complained about higher labor costs, particularly as some healthcare workers have left the industry. Nearly 20% of healthcare workers have quit their jobs during the pandemic, according to a report from Morning Consult.

Some hospital officials have also said they are paying exorbitant fees to nurse staffing agencies to cover shifts. Nurses have countered that some are quitting to join staffing agencies because hospitals aren’t paying enough.

Healthcare leaders can expect to contend with staffing challenges for some time. A recent study found around 20% of doctors and 40% of nurses say they plan to walk away in the next two years due to the stress of the pandemic.

Hospitals also paid more for drugs and other supplies in 2021 compared to the first year of the pandemic. Hospital drug costs rose 20.1% in 2021 compared to 2020, and hospital supply expenses increased 12.8% in 2021 compared to 2020.