Labor Shortages Drive Up Hospital Expenses as Margins Decline

Hospital expenses remain highly elevated compared to pre-pandemic levels as health systems and hospitals continue to face labor shortages and declining margins, according to the latest National Hospital Flash Report from Kaufman Hall.

The report drew on data from more than 900 hospitals to determine hospital financial performance in October 2021. The report found that hospital expenses rose across most metrics and most benchmark measures that month. Labor expenses were especially high, researchers stated.

Total labor expenses increased by 2.7 percent from September to October this year. The metric was also up by 12.6 percent compared to the same time last year and 14.8 percent compared to October 2019, prior to the COVID-19 pandemic.

Meanwhile, full-time equivalents (FTEs) per adjusted occupied bed fell by 4.5 percent year-over-year compared to 2020 and 4.1 percent year-over-year compared to 2019.

Researchers explained that higher salaries spurred on by national labor shortages are likely behind rising hospital labor expenses.

Hospitals also faced stubbornly high non-labor expenses well above pre-pandemic levels. Although, the expenses, which included supplies, drugs, and purchased services, declined from September to October.

Higher overall hospital expenses contributed to muted overall hospital financial performance, the report showed.

For the second consecutive month, hospital operating margins were down. In October specifically, the median change in operating margin was -12.1 percent, not including federal aid from pandemic-related legislation. Year-over-year, the median change in operating margin was -31.5 percent versus pre-pandemic levels in October 2019.

Margins were especially tight for hospitals operating in areas struggling with a surge in COVID-19 cases because of the Delta variant. This included hospitals in the West, South, and Midwest, which saw year-over-year margin declines in October, according to the report.

However, gross operating revenue and inpatient and outpatient revenues all increased year-to-date and year-over-year compared to 2019 and 2020 levels. This is the eighth consecutive month of increases, researchers pointed out.

Month-over-month, inpatient revenue was down slightly by 0.9 percent because of a “softening of inpatient volumes” in October. This was likely due to hospitals seeing a shift in the number of COVID-19 cases in their area.

Meanwhile, outpatient revenue increased by 1.2 percent from September to October and 8.6 percent compared to the same time last year. Researchers said this indicates consumers have not shied away from outpatient care despite the pandemic.

“Hospitals and health systems nationwide are feeling the pain of stubbornly high expenses,” Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said in a press release. “Broader economic trends such as [US] labor shortages are adding to the extreme pressures of the pandemic.”

“Hospitals face greater uncertainties in the coming months as a result, as COVID-19 cases and hospitalizations appear to once again be on the upswing before many have even had a chance to recover from the last surge.”