Hospital operating profit margins were down 3% for the year through April, continuing a period of lackluster performance brought on by a pricey workforce, lower patient volumes. and costly supply-chain problems, according to a new report from Kaufman Hall, a Chicago-based hospital consulting firm.
“2022 is shaping up to be a difficult year for hospitals,” said Erik Swanson, MPH, MS, senior vice president of Kaufman Hall’s data analytics practice. “Hospital operating margins remained in the red for a fourth consecutive month in April as organizations struggle to rebound from the Omicron surge.”
The report is based on data from 900 hospitals in the US.
Patient volumes are still down somewhat from what they were before the COVID-19 pandemic, and patients are presenting to hospitals with cases that are more costly.
“Those that are coming are staying longer, and the reason they are staying longer is they tend to be of a sicker population,” Swanson said. This is largely the result of people having delayed receiving care during the pandemic, so when they finally seek care, they require longer hospitalizations, he said. In addition, those who are not as sick either are not coming to a hospital emergency department (ED) for care and are instead seeking treatment at urgent care centers or through telemedicine, or they are simply choosing to wait it out and not undergo treatment at all.
Although adjusted discharges — a measure of patient volume that makes adjustments to account for care performed in the hospital’s outpatient setting — are down 0.3% for the year, adjusted patient days are up 1.8% for the year, reflecting the pattern of hospitalized patients being sicker.
In the report, Swanson said that the ED is no longer the hospital’s “front door.”
“The health of an individual hospital was very highly correlated with the ED volumes,” he said. “That trend has since broken and is no longer the case.”
The amount of outpatient care relative to inpatient care is also down. This can be seen in the decrease of 6.2% in operating minutes, many of which come from procedures performed in the outpatient setting, Swanson noted.
“Hospitals are seeing a greater share than they normally do of inpatient-type activity relative to the outpatient activity,” he said. “Generally, from a financial perspective, this is not as beneficial to hospitals.”
Hospitals are also struggling with a costly workforce, he said. Labor expenses are up 11.1% so far this year compared to last and are up 26.2% from 2020, he said. Factors such as nursing shortages and competition for lower-skilled jobs are helping to drive these expenses. And as volumes fluctuate, there is a greater need for temporary, contract-based staffing, a type of labor that is being used three to five times as much as before the pandemic and at rates that are three to five times what they were before the pandemic, Swanson said. The rate for a nurse who works as a contractor is about triple what it costs to pay an in-house nurse, he said.
“Put this all together and it creates a very, very high-pressure situation for an organization on the expense side to manage that,” he said.
Hospitals are working to build models that are more predictive and that more efficiently respond to demand — or are even creating in-house “staffing agencies” with workers who are shared across locations in a health system — but these measures haven’t shown bottom-line results yet.
Both medical and nonmedical supplies also continue to be costly. Drug expenses have fallen by 9.3% so far this year but are still up 14.4% from 2020. Supply expenses are up 0.5% for the year and are up 50.2% over 2020.
“Very much what we as consumers face in the market, hospitals themselves are also facing as it comes to many of these medical and non-medical-type supplies,” Swanson said.
He said that hospitals have learned how to safely care for patients and will continue to make that a priority, but there are other effects of the bleak financial picture.
“The reinvestment in plants and equipment may be decreased, strategic plans may be put on hold,” Swanson said. “I’ve seen some reports in the last week [about] some organizations having to figure out if they’re even delivering certain types of care or closing units down, so there are some of those impacts that will occur over sustained periods of losses.”
He added: “Certainly hospitals being in negative-margin territory is very bad…. There’s a lot of challenges ahead here.”
The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report come from Syntellis Performance Solutions.
Kaufman Hall. National Hospital Flash Report: May 2022. Published online May 31, 2022. Full text
Tom Collins is a freelance writer in South Florida who has written about medical topics from nasty infections to ethical dilemmas, runaway tumors to tornado-chasing doctors. He travels the globe gathering conference health news and lives in West Palm Beach.
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