Rising Expenses May Jeopardize Hospitals’ Financial Stability

June 13, 2023 - Hospital operating margins remained positive in April, but expenses continue to rise year-over-year, threatening future stability, a report from Syntellis Performance Solutions found.

The report draws on data from more than 135,000 physicians and over 1,300 hospitals.

Hospital operating margins were slightly above zero for the second consecutive month at 0.4 percent. Before March 2023, margins were negative for 15 months straight.

The median change in operating margin increased by 3.1 percentage points in April 2023 compared to April 2022. This marks the fourth month of year-over-year increases after 12 months of declines. Similarly, the median change in operating EBITDA margin was up by 2.8 percentage points year-over-year.

However, the median changes in operating margin and operating EBITDA margin declined by a respective 2.7 and 2.4 percentage points from March 2023.

“While a steadying of hospital operating margins is a positive sign, our nation’s hospitals and health systems remain on dangerously thin ice with extremely narrow operating margins,” Steve Wasson, executive vice president and general manager for Data and Intelligence Solutions at Syntellis, said in a press release.

“Healthcare leaders are finding ways to meet evolving patient needs and grow revenues, but relentless expense increases and other economic and industry challenges threaten to plunge them back into the red at any time.”

The positive operating margin in April resulted from revenue growth outpacing expense increases. Gross operating revenue and outpatient revenue both grew 7.2 percent from last year but were down 8.4 percent and 9.1 percent from March 2023, respectively. Inpatient revenue was up 6 percent year-over-year but declined 7.4 percent month-over-month.

Meanwhile, total expenses and total non-labor expenses grew by 2.2 percent and 3.7 percent from last year, marking the twelfth consecutive month of year-over-year increases.

Total labor expenses have increased year-over-year for 11 of the past 12 months, with a 1.1 percent year-over-year increase in April. Drug expenses saw the highest year-over-year growth of 9 percent.

While expenses continued to grow compared to last year, they declined from March to April. Total expenses decreased by 4.8 percent, total non-labor expenses were down 6 percent and total labor expenses fell 3 percent from March.

Rising year-over-year labor expenses for nurses have been driving high hospital expenses, the report found. From April 2021 to April 2023, nursing labor expenses per patient day rose by 17.6 percent, highlighting the effects of staffing shortages. Over the past two years, around 100,000 registered nurses left the workforce and more than 610,000 plan to leave by 2027.

In April 2023, patient volume metrics grew year-over-year but decreased month-over-month. Adjusted discharges were up 2.9 percent from April 2022 but down 9 percent from March 2023. Similarly, adjusted patient days increased by 2.4 percent year-over-year and declined by 7.2 percent month-over-month.

Emergency department visits grew by 4.2 percent compared to last year and declined by 4.5 percent from March 2023. Meanwhile, operating room minutes decreased year-over-year (-2 percent) and month-over-month (-11.1 percent).

Charity care and bad debt were up for hospitals in April, increasing by 15 percent year-over-year and 7.6 percent month-over-month. This metric may continue to rise as Medicaid resumes eligibility redeterminations. KFF has projected that as many as 17 million people could lose health insurance coverage due to the continuous enrollment provision ending.

Physician practices have seen operating changes from last year as well. Investment per physician full-time equivalent (FTE) increased by 8.5 percent, total direct expenses per physician FTE were up 6.2 percent, and physician revenues grew by 8.3 percent.