U.S. hospitals still feeling Omicron financial impact

March 30, 2022

According to a report by Kaufman Hall, hospital operating margins remained in the red for a second consecutive month in February as healthcare providers continued to feel the repercussions of the winter COVID-19 Omicron surge, according to the latest issue of Kaufman Hall’s National Hospital Flash Report.

Inpatient volumes decreased while outpatient volumes staggered to recover even as COVID-19 cases and hospitalizations plummeted in February, down from all-time highs on January 15. Lower volumes meant some expense relief compared to January, but hospital expenses remained high versus prior years, due in part to ongoing nationwide labor shortages and global supply chain issues.

“2022 is off to a very difficult start for our nation’s hospitals and health systems,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Margins, revenues, and inpatient volumes declined for most organizations in February, while outpatient care signaled only slow returns. The metrics indicate a challenging recovery from the Omicron surge in the coming months.”

The median Kaufman Hall Operating Margin Index reflecting actual February margins was -3.45%, up from -4.52% in January but still well below sustainable levels. Most U.S. hospitals reported margin declines in February, driving the month-over-month median change in Operating Margin down 11.8%. Compared to just before the start of the pandemic in February 2020, the median change in Operating Margin was down 42.4%.

A drop in COVID-19 hospitalizations contributed to a 13.3% decrease in Patient Days and a 7.6% decline in Adjusted Patient Days from January to February. Fewer severely ill COVID-19 patients also contributed to shorter hospital stays, pushing Average Length of Stay down 5.3% month-over-month. Adjusted Discharges were down just 0.6% from January, while surgery volumes had moderate increases as some patients returned for nonurgent procedures delayed during the latest surge. Operating Room Minutes rose 6.5% month-over-month.

Low volumes led to month-over-month revenue declines but provided temporary relief for hospital expenses following the intense demands of the Omicron surge. Gross Operating Revenue decreased 7.4%, Outpatient Revenue dropped 5%, and Inpatient Revenue was down 19.3% from January.

Total Expense per Adjusted Discharge decreased 4.5%, Labor Expense per Adjusted Discharge dropped 6.1%, and Non-Labor Expense per Adjusted Discharge declined 3.6% from January to February. Even so, widespread labor shortages and ongoing supply chain challenges continued to drive up year-over-year adjusted expenses.

Total Expense per Adjusted Discharge rose 10.4% and Non-Labor Expense per Adjusted Discharge rose 8% compared to February 2021. Labor Expense per Adjusted Discharge was up 15.3% year-over-year despite lower staffing levels in February, as wage competition drove up overall labor costs amid nationwide labor shortages.

Kaufman Hall Report

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