Hospital Finances Break Even as PHE Ends, Medicaid Unwinds

Finances broke even as the COVID-19 public health emergency (PHE) ended, leaving hospitals with little financial flexibility, healthcare consulting firm Kaufman Hall reports.

The median year-to-date (YTD) operating margin index for hospitals was 0.0 percent in April, the latest “National Hospital Flash Report” shows. The data draws from more than 900 hospitals from Syntellis Performance Solutions.

Breaking even marks an improvement from March, when the median YTD operating margin for hospitals was -0.3 percent. However, hospitals are now experiencing changes in bad debt, charity, care, and other factors after the end of the PHE and the Medicaid continuous coverage requirement.

Kaufman Hall reports increases in both bad debt and charity care in April, signaling a material impact Medicaid disenrollment has had on hospital financial performance.

Medicaid enrollment increased by an estimated 20 million people from February 2020 through March 2023, according to data from KFF. The organization also estimates that 17 million could lose Medicaid coverage as states unwind the continuous enrollment provision, which includes people who are no longer eligible and people who are eligible but face administrative barriers to renewal.

The loss of Medicaid enrollment will likely reverse the gains in insurance coverage, which hit its lowest level on record in early 2022.

Kaufman Hall points out that hospital volumes also dropped across the board, including inpatient and outpatient volumes. The consulting firm says volume decreases combined with increases in bad debt and charity care could signal the start of widespread disenrollment from Medicaid after the PHE.

“With states conducting their Medicaid eligibility redetermination, it’s predicted that hundreds of thousands of people will ultimately become uninsured,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a press release emailed to RevCycleIntelligence. “The data indicate that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care.”

Hospitals will have to manage the impact of the PHE’s end while paying more for supplies and labor, the report also indicates.

Labor expenses continued to increase in April, with labor expense per adjusted discharge rising 3.0 percent compared to March. Costs of goods and services also continued to be well above pre-pandemic levels.

However, overall expenses fell slightly in April, the report shows. Still, inflation continues to “throttle hospital finances,” the report states, especially as operating revenues took a 5.0 percent hit month-over-month.

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” said Swanson. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”