Financial Losses, Challenges Persist for Hospitals, Health Systems

April 27, 2022 - Hospitals and health systems have faced massive financial losses throughout the COVID-19 pandemic and continue to experience staffing shortages, rising expenses, and supply chain issues, a new report from the American Hospital Association (AHA) detailed.

Hospitals and health systems have been efficient in keeping up with COVID-19 surges since the onset of the pandemic. Facilities have expanded treatment capacity, hired additional staff, and maintained patient access to critical services and programs, AHA said.

However, as a result, hospitals have experienced billions of dollars in losses. According to AHA, more than a third of hospitals have negative operating margins.

Before the pandemic, labor costs made up more than 50 percent of total expenses for hospitals. The pandemic significantly impacted the hospital workforce and accompanying costs. Healthcare workers started leaving their positions due to burnout, stressful environments, and inadequate compensation.

As of March 2022, hospital employment was down by 100,000 compared to pre-pandemic levels.

Hospitals frequently turned to contract staffing firms as they faced workforce shortages, increased patient acuity, and higher demand for care. Travel nurses became a particularly popular solution for staffing shortages. Between January 2019 and January 2022, there was a 120 percent increase in job postings for contract or travel nurses, the report noted.

The cost of employing travel nurses also rose during the pandemic. Hospitals spent 4.7 percent of total nurse labor expenses on travel nurses in 2019, compared to 38.6 percent in 2022.

Healthcare staffing companies took advantage of this need for travel nurses and increased their rates, according to AHA. As a result, these organizations saw revenue and profit growth during the pandemic. Meanwhile, the dependence on travel nurses contributed to rising labor expenses for hospitals and health systems. Hospital labor expenses per patient were 57 percent higher in January 2022 than pre-pandemic levels.

“High reliance on contract or travel staff prevents hospitals and health systems from investing those costs into their existing employees, leading to low morale and high turnover, which further exacerbates the challenges hospitals and health systems have been facing,” the report stated.

Supply chain issues also contributed to higher hospital expenses, according to AHA.

Many factories and distributors shut down their operations when the pandemic hit, leaving hospitals without necessary supplies, including masks, gloves, and medical devices. Hospitals had to turn to local and non-traditional suppliers to meet demand. Health systems often had to pay higher rates for these suppliers.

Cost increases for energy, resin, cotton, and metal impacted hospital supply chains, as these materials are commonly used to manufacture medical supplies and devices.

By the end of 2021, supply expenses for hospitals were up by 15.9 percent compared to pre-pandemic levels. Medical supply expenses in intensive care units and respiratory care departments were up by 31.5 percent and 22.3 percent.

Additionally, prescription drug prices rose during the pandemic, escalating hospital drug expenses. Drug expenses were 28.2 percent higher by the end of 2021 compared to before the pandemic.

A heightened need for the COVID-19 drug Remdesivir was also a driving factor behind the rising drug expenses. In addition, drug manufacturers denied 340B drug pricing to eligible hospitals through contracted pharmacies, leading many hospitals to lose millions of dollars in 340B drug savings.

Rising economy-wide inflation may impact hospital prices by increasing the pressures of higher labor, supply, and acquisition costs, the report added.

As living costs rise, employees may demand higher wages to offset those costs, which would increase the already steep hospital labor expenses. Higher inflation may also lead to a decline in consumer demand. As prices for necessities such as food and transportation increase, consumers may be less likely to seek healthcare services due to cost. As a result, hospital volumes and revenues may decrease, AHA predicted.

Hospitals and health systems continue to see high volumes of COVID-19 and non-COVID-19 patients as COVID-19 cases fluctuate across the country. While AHA expressed appreciation for past financial resources, such as the Provider Relief Funds, the report stressed that hospitals need additional support from Congress to maintain access to care for patients.