Financial Challenges Persist for Hospitals, Physicians in September

Hospitals and physician practices continued to face financial challenges in September, as expenses outpaced revenue and operating margins remained negative, according to data from Kaufman Hall.

“Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective,” Erik Swanson, a senior vice president of Data and Analytics at Kaufman Hall, said in a press release. “Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”

The National Hospital Flash Report reflects financial performance data from more than 900 hospitals. The most recent report includes data from September 2022.

Hospital margins slightly increased from August but remained negative in September at -0.1 percent. This marks the ninth straight month of negative operating margins for hospitals, the report noted.

Revenue decreases were the driving factor behind the negative margins. Gross operating revenue fell 4 percent from August, inpatient revenue dropped 5 percent, and outpatient revenue dropped 4 percent. Gross operating revenue and outpatient revenue were up compared to September 2021, but inpatient revenue was down 7 percent from last year.

The average length of stay was unchanged in September, while adjusted discharges, adjusted patient days, and emergency department visits all declined by 3 percent month-over-month. Operating room minutes were down 5 percent compared to August but were 3 percent higher than last year.

Hospital expenses fell by 1 percent in September, but the decline was not enough to offset the revenue and volume decreases. Additionally, expenses were up 3 percent from September 2021 and 8 percent year-to-date (YTD).

Similarly, total labor expenses declined 2 percent month-over-month but increased 4 percent year-over-year and were up 10 percent YTD. Total expenses and labor expenses per adjusted discharge both remained the same in September.

Kaufman Hall researchers predict that hospitals will have to make hard decisions when it comes to providing patients with care as they grapple with ongoing financial challenges.

Physician practices have also seen a rough third quarter of 2022.

The Physician Flash Report includes data from more than 200,000 providers from 100 different specialties.

Providers’ revenues increased slightly from Q2 to Q3 2022, with net patient revenue per provider full-time equivalent (FTE) rising almost $10,000 to $389,017. This increase was driven by net patient revenue growth in medical specialties and primary care, the report noted.

Provider productivity and compensation also grew in Q3. The median provider paid compensation per provider FTE rose from $274,567 to $281,397, while the median physician paid compensation per physician FTE went from $333,671 to $347,675.

However, higher revenues, patient volumes, and provider compensation were insufficient to outweigh rising expenses in Q3 2022. Total direct expense per provider rose from $602,382 in Q2 to $626,120 in Q3 and was up 9 percent from Q3 2021.

Expense per provider rose for medical specialties, primary care, and surgical specialties.

Meanwhile, labor as a percent of total expense remained relatively stable, falling by just 0.2 percent from Q2 to Q3.

Experts agree that 2022 has been one of the worst financial years for hospitals and healthcare providers.

The Kaufman Hall findings coincide with recent opinions from Johns Hopkins economists who said hospitals would have to close departments or service lines to stabilize their profit margins by the end of the year.