Rising Expenses Continue to Hurt Health System, Hospital Finances

June 30, 2022 - Despite seeing minor improvements in revenue and patient volumes, health system and hospital finances were hurting in May 2022 due to rising expenses and negative operating margins, Kaufman Hall’s National Hospital Flash Report found.

The report includes actual and budget data from more than 900 hospitals. The most recent data reflects hospital performances during May 2022.

The median change in operating margin was up 18.9 percent from April but down 45.6 percent from May 2021. Similarly, the median change in operating EBITDA margin was up 13.5 percent from April but down 36.1 percent from May 2021.

In addition, hospital operating margins were negative for the fifth consecutive month at -0.33 percent.

Patient volumes increased in May, which may be attributed to the warmer weather leading to more seasonal injuries, the report suggested. Many people also tend to schedule elective procedures during the summer months.

Length of stay rose by 2.3 percent month-over-month and 5.5 percent year-over-year. Patient days were also up 4.8 percent from April but down 0.5 percent compared to May 2021.

Adjusted patient days increased by 3.5 percent from April and were 4.0 percent higher than May 2021 levels. Adjusted discharges saw a 0.6 percent month-over-month increase but were down 0.3 percent from May 2021.

Emergency department visits rose 9.5 percent from April to May and were up 4.5 percent from May 2021. Meanwhile, surgery rates remained generally stable, with operating room minutes falling just 1 percent from April and rising 0.1 percent year-over-year.

Improvements in patient volumes led to slightly higher revenues for hospitals last month. For example, gross operating revenue increased 3.4 percent from April, 7.6 percent from May 2021, and is up 6.9 percent year to date (YTD).

Outpatient revenue increased 2.2 percent month-over-month, 9.4 percent year-over-year, and is up 9.1 percent YTD. Similarly, inpatient revenue rose 3.5 percent month-over-month, 2.6 percent year-over-year, and is up 4.2 percent YTD, the report noted.

However, these financial improvements did not outweigh the significant expenses hospitals and health systems saw.

“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,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a press release.

“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.”

Total expenses increased 1.1 percent from April to May and were up 10.7 percent compared to last year. Total costs have increased 10.4 percent YTD, with inflation and labor shortages driving this escalation. In addition, total expense per adjusted discharge increased 0.3 percent from April.

Labor expense per adjusted discharge rose slightly by 1.0 percent between April and May and has increased 13.6 percent YTD. Meanwhile, full-time employees per adjusted occupied bed (FTEs per AOB) is down 2.7 percent YTD, indicating that hospitals are spending more on labor costs despite employees working fewer hours, the report pointed out. However, FTEs per AOB increased 2.8 percent in May.

Hospitals and health systems have faced a financially challenging year so far.

The Omicron surge of January 2022 led to rising expenses and sudden declines in revenue, operating margins, and outpatient volumes.

Facilities saw some temporary relief in March as declining COVID-19 cases and hospitalizations contributed to higher revenues and outpatient volumes and lower expenses.

However, the respite did not last long, as cases and hospitalizations escalated again in April, resulting in lower revenues and patient volumes.