Over Half of Hospitals to Have Negative Margins Through 2022

2022 is shaping up to be the most financially difficult year for hospitals and health systems since the start of the pandemic, according to the American Hospital Association (AHA).

A new report prepared by healthcare consulting firm Kaufman Hall for the AHA shows that over half of US hospitals are expected to have negative margins through the rest of the year under the most optimistic of projections in which margins are 37 percent under pre-pandemic levels.

Hospital margins could drop as much as 133 percent, with over two-thirds of hospitals operating in the red under the pessimistic scenario, which includes the potential for future COVID-19 variant surges, increased rates of expense growth, sicker patients who have delayed care, aggressive payer negotiations, and increased payer mix of non-commercial payers.

More hospitals are projected to face negative margins than before COVID-19 hit in 2020, the report states.

Ultimately, researchers say hospitals are likely to incur billions of dollars in losses in 2022 under both optimistic and pessimistic scenarios, resulting in “the most difficult year for hospitals and health systems since the beginning of the pandemic with no foreseeable federal support.”

“While federal support and relief has tapered off, the fight against COVID hasn’t,” AHA President and CEO Rick Pollack says in a press release. “Managing the aftermath of the pandemic has placed the vast majority of America’s hospitals in serious financial jeopardy as they experience severe workforce shortages, broken supply chains, the Medicare 2 [percent] sequester kicking back in and rapid inflation that has increased the cost of caring.”

AHA has been advocating on the hill for continued federal support for hospitals and health systems. Just this week, the industry group asked lawmakers to once again suspend the Medicare sequester, which took full effect on July 1st after nearly two years of suspension under pandemic-related legislation. AHA similarly called on Congress to prevent or postpone the Pay-As-You-Go Act of 2010 (PAYGO) cuts, which require agencies to not increase the federal budget deficit over a five- to ten-year period.

Hospitals and health systems are facing “crushing financial challenges,” AHA said in their calls to action.

Their new report underscores this claim, finding higher-than-normal expenses.

Hospital expenses are significantly higher compared to pre-pandemic levels, with a projected increase through the rest of 2022, the report shows. Researchers project an increase of almost $135 billion over 2021 levels.

Labor expenses are slated to increase the most, with an estimated $86 billion boost. Meanwhile, the report projects non-labor expenses to increase by $49 billion. Non-labor includes the costs of temporary, non-staff workers. Notably, these contract labor expenses are to remain 500 percent higher than pre-pandemic levels, the report shows.

Hospitals are also facing higher expenses in addition to workforce shortages, supply disruptions, and a “host of other related challenges,” the report says. Workforce shortages are now the top concern for hospital and health system CEOs, surpassing financial challenges which has been the top C-suite priority for years.

US hospitals and health systems are up against financial challenges with no additional federal support. Early during the pandemic, Congress passed several COVID-19-related laws to support healthcare providers as they fought an unknown threat to public health. Entering the third year of the pandemic, federal support has tapered off despite additional surges of COVID-19, including those related to the Delta and Omnicron variants.

Financial challenges could be incredible if the pessimistic scenario plays out and there is no additional federal support, the report indicates. AHA advises Congress to prevent Medicare reimbursement cuts slated to take effect in 2023 and to make some waviers permanent. The industry group also recommends that lawmakers focus on commercial health plans accountable for increased costs and care delays and extend or make permanent programs that support rural hospitals, which are among the most vulnerable healthcare institutions.

“These realities translate into access to services being put in jeopardy,” Pollack states. “This deserves the immediate attention of policymakers at every level of government to ensure we are able to keep people healthy and maintain essential public services that our communities depend on. America simply can’t be strong without its hospitals being strong.”