Rising Expenses, Negative Margins Drove Poor Hospital Finances

Hospitals’ poor financial performances continued in October, driven by negative operating margins and rising expenses, according to data from Kaufman Hall.

The National Hospital Flash Report reflects financial performance data from over 900 hospitals. The most recent report includes data from October 2022.

Hospital margins remained negative for the tenth straight month, with the operating margin index at -0.5 percent. Operating margins were down 2 percent from September and 13 percent from October 2021.

Expenses outpaced revenues again in October, the report found. Total expenses increased 1 percent month-over-month and 4 percent year-over-year. Total labor expenses were up 3 percent compared to September.

Amid staffing shortages, hospitals have been turning to external sources for IT and human resources support, potentially contributing to high labor expenses, Kaufman Hall researchers suggested.

Total expense (1 percent) and labor expense per adjusted discharge (3 percent) were both up from September as well.

Meanwhile, supply expenses fell 1 percent from September to October and drug expenses were down 4 percent.

“Record-high expenses across the economy have not eased up, leaving hospitals in a precarious financial position as we look to the end of the year,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a press release sent to RevCycleIntelligence.

“With the labor market in the healthcare sector still highly competitive, hospitals are feeling the financial pressure of needing to attract and retain workers with significant increases in salaries.”

Workforce shortages also led to challenges with discharging patients. Adjusted discharges decreased by 1 percent from September to October, leading to a 3 percent increase in the average length of stay. However, the more extended stays did not result in additional revenue, the report noted.

Emergency department (ED) visits rose 3 percent month-over-month, while operating room minutes grew by 2 percent. These increases led to gross operating revenue rising 2 percent in October.

Despite the positive impact on revenue, increasing ED visits could negatively affect the ED workforce as staffing shortages prevent inpatient admissions and increase patient boarding.

The American College of Emergency Physicians (ACEP) recently urged the Biden Administration to address immediate and long-term solutions to excessive ED boarding. The organization stressed how boarding impedes patient access to timely care and exacerbates staffing shortages and physician burnout.

“Every aspect of patient care—from being admitted, to treatment, to discharge—is affected by the labor shortage and as we head into the virus season and potential new waves of COVID-19, the pressures on hospitals and their staff could mount,” Swanson continued. “The September data reinforce what we have known for several months, 2022 has been and will continue to be a very difficult financial year for the nation’s hospitals.”

Net operating, inpatient, and outpatient revenue also rose in October, but the increases were not enough to offset high expenses.

Hospitals faced a similar situation during the previous month when expenses fell by 1 percent and operating revenue declined by 4 percent.

Industry experts agree that 2022 has been a challenging year for hospitals and suspect most will end the year with negative margins.