Hospitals see 9th month of negative margins in ‘very difficult 2022’

The end of the third quarter continued what has been one of the worst years for hospitals, according to Kaufman Hall’s new monthly report.

After nine months of negative margins, hospitals are still waiting for relief.

With three quarters of 2022 in the books, hospitals continue to see disappointing returns on what has been one of the worst years for hospitals, according to the latest monthly report from Kaufman Hall.

Hospital margins remained in negative territory for the ninth consecutive month, the consulting firm says. Analysts have said this has been the most difficult year financially for hospitals in the COVID-19 pandemic.

Hospitals suffered decreases in discharges, operating room time and inpatient minutes in September, the report stated.

Healthcare leaders probably shouldn’t expect a big rebound in the last quarter, said Erik Swanson, a senior vice president of data and analytics at Kaufman Hall.

“Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective,” Swanson said in a statement. “Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”

Hospital revenues suffered because operating room minutes dropped by 5% in September, compared to the previous month, the report stated.

The median year-to-date operating margin index for hospitals was -0.1% in September, Kaufman Hall reported.

Emergency department visits, adjusted patient days and discharges all fell 3% from August to September, according to the report.

Hospitals are seeing sicker patients requiring more care, as seen in the drop in discharges. Healthcare executives have said staffing shortages at post-acute care facilities have hampered transferring patients who are ready to be discharged. Hospitals are asking Congress for more aid to care for patients that can’t be discharged due to a lack of staff and beds at long-term care facilities.

Hospitals have been suffering steep losses in 2022, due to inconsistent volumes, higher labor expenses, and rising supply costs. More than half of the nation’s hospital systems could finish the year in negative margins, according to a Kaufman Hall analysis for the American Hospital Association.

Healthcare leaders need to plan carefully to deal with the financial setbacks, said Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall.

“Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down,” Bates said in a statement. “Without a positive margin there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future.”

Hospital expenses dipped in September, dropping 1% from August. But hospital expenses are 3% higher than September 2021 and have risen 8% year-to-date, according to the report.

Health systems have also seen labor costs rise sharply in the pandemic, but they received a bit of relief with a 2% drop in labor expenses in September, compared to the previous month.

Still, labor expenses have risen 10% year-to-date, and are 22% higher compared to 2019. Supply expenses dropped 4% from August to September, but they are 2% higher year-to-date.