Labor Expenses Hurt Hospital Financial Performance

Workforce challenges continue to dampen hospital financial performance as labor expenses remain high, according to the latest “National Hospital Flash Report” from healthcare consulting firm Kaufman Hall.

The report using financial data from Syntellis Performance Solutions from more than 1,300 hospitals found that overall hospital financial performance declined slightly in September compared to the previous month. The monthly operating margin index calculated by Kaufman Hall fell from 3.5 percent in August to 1.0 percent by September, while labor expenses per adjusted discharge were up by 4 percent versus August.

Hospitals also had elevated bad debt and charity care levels on a year-over-year basis.

Additionally, volumes decreased across all categories, further diminishing hospital financial performance in September. However, hospital bottom lines were still healthier compared to last year and year-to-date margins increased slightly, the report highlighted.

But hospitals—and physician practices—are not in the clear yet. Labor expenses also continued to rise for physician practices overall and as a share of revenue despite a decrease in the overall support staff to provider work relative value units (wRVUs), Kaufman Hall reported in the “Physician Flash Report,” which uses data from more than 200,000 employed providers.

The report also found that providers are being compensated less per wRVU despite overall increases in revenue and productivity in the third quarter of 2023. The investment per provider was $223,530 at the time, representing slow improvement. Investment per provider is up 1 percent from the third quarter of 2022 and 8 percent from the third quarter of 2021.

“While overall expenses seem to be softening as volume decreases, labor costs continue to be a challenge for hospitals and health systems. Hospitals and health systems need to identify long-term solutions that can address persistent workforce issues,” Erik Swanson, senior vice president of Data and Analytics at Kaufman Hall, said in a statement.

The report identified several action steps for hospitals and health systems, including creating “a robust, flexible staffing pool, which can be an alternative to travel contracts.” Hospitals spent 258 percent more on contract labor last year to combat widespread clinician shortages and higher patient demand, according to a report released earlier this year by the American Hospital Association (AHA) and Syntellis.

Kaufman Hall explained in the “Physician Flash Report” that the market is competitive for support staff and healthcare organizations are feeling the impact of this tight labor market.

“The ratio of support staff to providers has decreased as teams struggle to keep up with increasing productivity,” Matthew Bates, managing director and Physician Enterprise service line lead at Kaufman Hall, said in the statement. “Organizations need to examine their staffing mix and be strategic about how they deploy support staff to augment their most productive providers. In this competitive labor market, organizations should also focus on ways to retain support staff by establishing career paths and opportunities for advancement.”