Hospital Finances Still Recovering as We Enter Third Year of Pandemic

January 31, 2022 - Most hospitals ended 2021 in a stronger financial position compared to the first year of the COVID-19 pandemic in 2020. However, they are entering the third year of COVID-19 down compared to pre-pandemic levels and with a worsening labor market, a new report shows.

The National Hospital Flash Report from Kaufman Hall analyzed financial performance data from more than 900 hospitals. The data reflects December 2021 hospital financial performance.

Hospital volumes increased throughout December as facilities faced another surge of COVID-19. This time, it was the highly contagious Omicron variant that continues to spike COVID-19 cases in certain parts of the country. The report revealed a 5.5 percent increase in adjusted discharges and a 3.9 percent increase in adjusted patient days compared to November. Emergency department visits also increased by 7.3 percent during that time, which was consistent with earlier surges of COVID-19.

Hospitals ended 2021 with higher volumes compared to the first year of the pandemic. The report stated that adjusted discharges were up by 6.9 percent, adjusted patient days were up by 11.8 percent, and average lengths of stay were up by 3.5 percent versus 2020. Other volume metrics also experienced increases, with operating room minutes up by 8.3 percent and emergency department visits up by 10.9 percent from the previous year.

Increased volumes boosted revenue in December 2021. Hospital revenues were elevated for the tenth consecutive month both year-to-date and year-over-year, researchers reported.

Gross operating revenue was up by 4.4 percent compared to November, 14.7 percent for the year compared to 2020, and 12.1 percent for the year compared to 2019.

Inpatient revenue saw the largest increase at 6.2 percent month-over-month, 11.5 percent for 2021 versus 2020, and 9.9 percent compared to pre-pandemic levels. Outpatient revenue saw a 2.9 percent increase from November and performed 18.5 percent above 2020 and 11.2 percent above 2019, according to the report.

However, hospitals treated more severely ill patients who required more intensive services and longer hospital stays, according to the report. This contributed to higher hospital expenses.

In December 2021, hospitals continued to pay more for items and goods, as well as key resources like staffing. Total expense per adjusted discharge was up by 3.5 percent for the year versus 2020 despite a slight decrease of 1.8 percent compared to November 2021.

Labor expense per adjusted discharge saw a similar trend. The metric was down by 2.9 percent compared to November 2021 but up by 4.6 percent compared to 2020.

Meanwhile, full-time equivalents (FTEs) per adjusted occupied bed (AOB) fell by 0.3 percent month-over-month and were down by 8.9 percent for the year. Non-labor expense per adjusted discharge increased by 0.7 percent month-over-month and by 2.1 percent for the year.

However, the report emphasized that hospital labor expenses were significantly higher compared to pre-pandemic levels. For example, compared to 2019, total expense per adjusted discharge was up by 20.1 percent in 2021. During that same period, labor expense per adjusted discharge was up by 19.1 percent and non-labor expense per adjusted discharge was up by 19.9 percent.

Together, the metrics showed a 38.0 percent median change in operating margin month-over-month, not accounting for pandemic-related federal aid. With the aid, the median change in operating margin increased 49. Percent.

But researchers pointed out that the median change in operating margin was 14.7 percent below pre-pandemic levels without the federal aid. With federal aid, it was up by 44.8 percent for all of 2021 versus all of 2020 and down by 3.8 percent versus all of 2019.

“As we enter the third year of the pandemic, hospital and health system leaders face worsening labor shortages that are driving up costs across healthcare,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a statement emailed to RevCycleIntelligence. “Organizations are having to pay high salaries to attract the workforce they need, while also paying more for drugs and other supplies. Managing through these challenges will require organizations to build new levels of agility and efficiencies.”