Hospital Margins Remained Negative in August Despite Revenue Increases

Health system finances will likely remain unstable for the rest of the year, as rising patient volumes and revenues were not enough to offset negative hospital margins in August 2022, according to a report from Kaufman Hall.

The National Hospital Flash Report analyzes actual and budget data from over 900 hospitals across the country. The latest report reflects hospital performance from August 2022.

Financial performances generally improved from July to August, but operating margins were still negative. The median operating margin was -0.3 percent through August, which marked a 4.2 percentage point increase from July. However, operating margins were down by 2.1 percentage points compared to August 2021.

Similarly, the operating EBITDA margin increased by 3.7 percentage points from July to August but was down by 2 percentage points from 2021.

“August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a press release emailed to RevCycleIntelligence.

“Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels. In addition, hospitals need to reckon with new market entrants, like urgent care centers and free-standing surgery centers, that are chipping away at hospital outpatient revenues and overall margins.”

Outpatient volume rose, likely due to more patients returning to hospitals for elective procedures. Operating room minutes increased 13.6 percent from July and were up 5.5 percent compared to last year. Emergency department visits also rose 1.1 percent from July but were down 2.4 percent year-over-year.

Length of stay declined 2.1 percent month-over-month and was down 2.7 percent year-over-year. Patient days increased 0.7 percent between July and August but were down 7.9 percent year-over-year. Meanwhile, adjusted discharges rose 7 percent month-over-month and were up 5.4 percent from August 2021.

Patient volume increases led to higher revenues for hospitals.

Gross operating revenue grew 9.1 percent from July and 5.5 percent from August 2021 and is up 5.5 percent year-to-date (YTD). Outpatient revenue increased 10.9 percent between July and August and was up 10.6 percent from last year and 7.8 percent YTD.

Inpatient revenue increased 4.9 percent month-over-month but was down 3.5 percent year-over-year. However, inpatient revenue is up 2.3 percent YTD.

Expenses also increased, but not as much as revenue, the report noted. Total expenses grew 3.3 percent from July to August and 6 percent from August 2021. Total expenses are up 8.9 percent YTD. These increases were likely driven by supplies and expensive drug costs, Kaufman Hall researchers said.

Meanwhile, total labor expense increased slightly by 1.3 percent from July to August and is up 10.6 percent YTD. Labor expense per adjusted discharge fell 5.3 percent month-over-month, suggesting that contract labor utilization is dropping. However, full-time employees per adjusted occupied bed was down 3.3 percent from July, indicating that the healthcare labor shortage is ongoing

“Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward,” Swanson added.

Hospitals have been struggling financially since the COVID-19 pandemic hit, and 2022 was no exception. Hospitals started the year with falling revenues and rising expenses as the Omicron variant surge hit the country.

Facilities saw temporary relief in March when declining COVID-19 cases contributed to higher revenues and outpatient volumes and lower expenses. In July, hospitals experienced continuous low operating margins and revenue decreases again.