- Financial outlooks for U.S. hospitals and health systems continue a bleak trend as rising supply and labor expenses contributed to the fifth straight month of negative hospital operating margins, according to a report released Tuesday from Kaufman Hall.
- Although gross operating revenue rose slightly in the report, which analyzes hospital performance from April to May, year-to-date operating margin index remained down 0.33%.
- The report displays a continued trend of lackluster hospital performance that’s expected to continue throughout 2022, with margins expected to remain below pre-pandemic levels for the rest of the year.
Hospitals and health systems experienced a 19% median rise in operating margins in May compared to to the previous month but continued to lag significantly behind pre-pandemic levels, with operating margins down 46% from May 2021, according to the report.
Patient volumes and rising length-of-stay visits contributed to the rise in operating margins from April to May this year. Length of stays increased 2.3% from April and 5.5% compared to May 2021, with overall patient days increasing by 4.8% month over month.
The increase in patient stays contributed to a gross operating revenue increase of 3.4% from April, representing a 6.9% increase year to date.
Emergency department visits jumped 9.5% from April to May.
Warmer summer temperatures likely contributed to the rise in ED visits and patient stays as people opt to spend more time outdoors. Patients are also more likely to schedule elective procedures in the summer, adding to the slight revenue and patient stay increase, according to the report.
But gross operating revenue and length-of-stay increase gains were too small to offset climbing hospital expenses. Inflation and labor shortages contributed to an 11% rise in total expenses compared to May 2021, with total costs climbing over 10% year to date.
The year’s hospital outlook looks bleak as margins continue to stay negative and lag significantly behind pre-pandemic levels.
“While we are seeing hospitals revenues inch up, it simply is not enough to mitigate the skyrocketing costs of material and labor expenses, resulting in negative operating margins for the nation’s hospitals and health systems,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in the report.
And, despite fewer hours worked, hospitals are still paying heightened labor expenses. Full-time employees per adjusted occupied hospital beds were down over 2% year to date but labor expenses per adjusted patient discharge were up 14% year over year, which indicates hospitals are spending more on labor costs despite fewer employee hours worked.
Non-labor expenses also increased, with supply expenses and total non-labor expenses rising about 9% year over year.
Rising expenses come as the Federal Reserve raised the benchmark rate by 75 basis points in June, the sharpest increase since 1994, and inflation surged to a 40-year high in May.