Healthcare Expenses Continue to Rise, While Hospital Volumes Decline

Healthcare expenses continue to rise across the board as both hospitals and physician groups deal with pandemic-related impacts on financial performance, according to two new reports from healthcare consulting firm Kaufman Hall.

For hospitals, total expense per adjusted discharge was up by 2.6 percent year-to-date and 12.9 year-over-year, the firm reported in the National Hospital Flash Report for September 2021. Labor expenses also increased across all measures despite declines in patient volumes month-over-month and the number of hospital workers per patient bed, the Report found using data from over 900 facilities.

Global supply chain disruptions also impacted both hospital and physician expenses this fall. Non-labor hospital expenses were up 10.3 percent year-over-year and 8.8 percent year-to-date due in part to supply chain disruptions. Notably, hospitals faced drugs expenses that were up by 43.9 percent year-over-year and 23.5 percent year-to-date.

Meanwhile, Kaufman Hall reported in the Physician Flash Report that physician expenses also escalated in the third quarter of 2021. Expenses exceeded the $900,000 mark because of the supply chain disruptions and higher revenue cycle costs, the firm found using data from more than 100,000 providers across specialties.

Physician expenses rose across all specialty cohorts analyzed in the report. On average, total direct expense per physician full-time equivalent (FTE) increased to $914,045 in the third quarter. That expense is up 4.4 percent from the second quarter, 13.2 percent from the third quarter of 2020, and 10.8 percent from the third quarter of 2019, which was before the COVID-19 pandemic hit.

“Multiple factors are contributing to alarming and sustained increases in hospital expenses,” Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said in a press release emailed to RevCycleIntelligence. “Growth in labor expenses are outpacing increases in hours worked, suggesting hospitals are paying more due to nationwide labor shortages. Rising supply and drug expenses also point to worldwide supply chain issues.”

While both hospitals and physician groups continued to be hit by rising expenses, physician groups appear to be doing better in terms of overall financial improvement.

The Physician Flash Report showed significant revenue and productivity gains for most physician groups in both the second and third quarters of this year.

Net revenue per physician FTE rose to $660,762 in the third quarter, representing an increase of 4.4 percent from the second quarter ($632,691) and an increase of 11.4 percent from the same quarter last year.

Additionally, net revenue per physician work relative value unit (wRVU) rose by 2.4 percent from $103.46 in the third quarter of 2020 to $105.97 by the third quarter of 2021. Kaufman Hall said the increase indicates that “recent changes in payments and fee schedules are having a minimal impact on fluctuations in this metric.”

Overall, physician wRVUs rose 0.1 percent from the second to third quarters of 2021 and by 9.4 percent compared to the same period last year.

This trend marks two consecutive quarters of increases compared to both 2020 and 2019 performance, Kaufman Hall reported.

“Physician activity has come roaring back in the second and third quarters of this year,” Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall, said in the press release.

“We’re seeing significant increases in physician productivity and revenues, but higher expenses are driving increases in physician investments. Also concerning is the ever-widening gap between practices requiring the highest versus the lowest levels of investment, suggesting the emergence of clear winners and losers as physician practices prepare for a COVID-19 endemic future.”

On the other hand, hospitals saw patient volumes fall once again as COVID-19 cases declined in September. This contributed to a drop in the median change in operating margin of 18.2 percent from August to September and 1.7 percent compared to pre-pandemic.

Kaufman Hall pointed out that hospitals operating in areas that were recently hit by the surge of the Delta variant were the most affected. This includes hospitals in the West, South, and Northeast/Mid-Atlantic, which all saw year-over-year margin decreases.