Hospital financials take turn for the worse

Aug. 31, 2022

Hospitals and health systems saw decreases in outpatient revenue and operating room time and increases in inpatient lengths of stay from June to July 2022, leading to a decline in financial performance after months of improvement, according to the latest National Hospital Flash Report from Kaufman Hall.

According to experts at Kaufman Hall, U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the COVID-19 pandemic, with 2022 shaping up to be the worst year financially for the sector since its outset. The experts note hospitals and health systems now face poor financial performance without support from CARES Act or stimulus funding to offset the losses.

Median Operating Margin Down After Months of Improvement

The median Kaufman Hall year-to-date operating margin index was -0.98%, for a seventh straight month of negative actual operating margins. The median percent change in operating margin in July was -63.9% from June 2022 and -73.6% from July 2021.

Pent Up Demand from Omicron Bottoms Out, Decreasing Outpatient and Surgical Revenues

Outpatient volumes decreased in July, as patients likely sought care in ambulatory settings. Additionally, operating room minutes dropped 10.3% from June 2022. The average length of stay, however, rose 2% from June 2022 and 3.4% from July 2021, a sign that hospitals are treating sicker patients. Patient days rose 2.8% from June to July but were down 2.6% compared to July 2021. Emergency department visits increased 2.6% from June to July.

“July was a disappointing month for hospitals and put 2022 on pace to be the worst financial year hospitals have experienced in a long time,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Over the past few years, hospitals and health systems have been able to offset some financial hardship with federal support, but those funding sources have dried up, and hospitals' bottom lines remain in the red.”

Expenses Dipped Slightly, but not Enough to Offset Poor Revenues

Volume decreases led to declining revenue performance in July. Gross operating revenue was down 3.6% from June. Outpatient revenue dropped 4.8% from June. Similarly, inpatient revenue dropped 0.7% from June and 1.5% from July 2021.

Hospitals saw expenses drop slightly, but it was not enough to offset the declining revenues, according to Kaufman Hall experts. Total expenses decreased just 0.4% from June and are up 7.6% from July 2021.

“2022 has been, and will likely continue to be, a challenging year for hospitals and health systems, but it would not be prudent to focus on short-term solutions at the expense of long-term planning,” said Swanson. “Hospitals and health systems must think strategically and make investments to strengthen performance toward long-term institutional goals despite the day-to-day financial challenges they experience.”

Kaufman Hall release

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