Hospital and healthcare margins continue to struggle

June 1, 2022

Hospitals and health systems experienced a challenging April as they attempted to stabilize after the winter Omicron surge and amidst a new spike in COVID-19 cases, according to the latest National Hospital Flash Report from Kaufman Hall.

Following a brief rebound in March, hospitals and health systems experienced significant decreases in patient volumes and revenue, with expenses lessening only slightly in April.

Median operating margins remain in the red

The median Kaufman Hall Year-To-Date Operating Margin Index was -3.09% in March, which also marked the fourth straight month of negative actual operating margins this year. The median change in operating margin was down 38.1% from March, and down 76% from April 2021.

Patient volumes and days continue downward trend

Patient volumes and days declined in April. Patient days were down by 5.7% compared to March and 1.8% compared to April 2021. Adjusted patient days dropped 6.5% from March to April but were up 1.8% compared to April 2021. Adjusted discharges decreased 3.3% from March and decreased 0.3% compared to April 2021.

 “Hospital patients in 2022 are likely sicker, harder to discharge, and more expensive to treat than hospital patients in 2021,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Fewer patients who are sicker and more expensive weigh heavily on hospitals’ operating margins, putting a strain on both expenses and revenue.”

Revenues are down, while expenses remain high

Lower patient volume resulted in poor revenue performance in April, the analysis shows. Gross operating, inpatient, and outpatient revenues all dropped approximately 7% from March levels, however, all are up year-to-date compared with the same period in 2021—with gains of 6.6%, 5.3%, and 8.5%, respectively.

 Expenses dropped 4.3% from March but remain high compared to 2020 and well above pre-pandemic levels. As in other areas of the economy, labor shortages and supply chain challenges contributed to expense levels. According to the analysis, expenses grew 8.3% since April 2021 and 9.6% year-to-date compared with the same period in 2021.

“Labor shortages, high prices for supplies, and cost increases to treat sicker patients over longer stays are ballooning hospital expenses. With a bleak consensus outlook for the U.S. economy, those factors and their effects could be here for a while,” said Swanson. “The first four months of 2022 have been challenging for the nation’s hospitals and health systems, which has been borne out in the losses many providers have reported so far this year. Even if margins return to pre-pandemic levels, many hospitals may likely end the year with substantially depressed margins.”

The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report come from Syntellis Performance Solutions.

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