Hospital Finances Suffered as Margins, Revenue Declined in July

After experiencing slight recovery during the first half of the year, hospital finances suffered in July 2022 as health systems saw low operating margins and revenue decreases, according to a report from Kaufman Hall.

Kaufman Hall’s National Hospital Flash Report includes actual and budget data from over 900 hospitals. The recent report reflects hospital performance during July 2022.

“July was a disappointing month for hospitals and put 2022 on pace to be the worst financial year hospitals have experienced in a long time,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a press release.

“Over the past few years, hospitals and health systems have been able to offset some financial hardship with federal support, but those funding sources have dried up, and hospitals’ bottom lines remain in the red.”

Hospitals experienced a seventh straight month of negative operating margins, seeing a median operating margin of -0.98 percent through July. Hospital margins have not been this bad since the beginning of the pandemic, the report noted.

The median percent change in operating margin was -63.9 percent from June 2022 and -73.6 percent from July 2021. Similarly, the median operating EBITDA margin was down 45.2 percent from last month and 49 percent from last year.

Outpatient volumes also dropped in July, perhaps due to patients seeking care in ambulatory settings. Emergency department visits rose 2.6 percent from June to July, while operating room minutes declined 10.3 percent month-over-month and 7.7 percent year-over-year.

The average length of stay was up 2 percent from June and 3.4 percent from July 2021, indicating that hospitals were treating sicker patients. In addition, patient days increased 2.8 percent month-over-month but were down 2.6 percent year-over-year.

Adjusted discharges declined 2.8 percent from June and were down 4.2 percent compared to the same time last year.

As outpatient volumes dropped, so did revenue.

Gross operating revenue fell 3.6 percent between June and July but was up 1.2 percent year-over-year, the report found.

Similarly, outpatient revenue dropped 4.8 percent month-over-month and was up 0.6 percent year-over-year. Inpatient revenue decreased 0.7 percent from June and was down 1.5 percent from July 2021.

However, gross operating revenue (5.5 percent), outpatient revenue (7.1 percent), and inpatient revenue (3.6 percent) were all up year-to-date (YTD).

July brought lower expenses for hospitals, but it was not enough to offset the revenue losses, the Kaufman Hall researchers noted.

Total expenses dropped 0.4 percent but increased 7.6 percent from last year. Total costs were up 9.6 percent YTD due to inflation and continuous labor shortages.

For example, labor expense per adjusted discharge rose 3.5 percent month-over-month and was up 13.9 percent YTD. Full-time employees per adjusted occupied bed increased 7.2 percent from June, while total expense per adjusted discharge was up 2 percent.

“2022 has been, and will likely continue to be, a challenging year for hospitals and health systems, but it would not be prudent to focus on short-term solutions at the expense of long-term planning,” Swanson continued. “Hospitals and health systems must think strategically and make investments to strengthen performance toward long-term institutional goals despite the day-to-day financial challenges they experience.”

Hospitals’ financial performances during July differed significantly from June performances.

Outpatient volumes, operating room minutes, adjusted discharges, and revenues were up, while length of stay, patient days, and emergency department visits dropped.