Kaufman Hall Report: Hospitals Remain in Financial Trouble

Oct. 5, 2022
The latest Kaufman Hall “National Hospital Flash Report” confirms the moment in healthcare: hospitals and health systems continue to struggle financially

In a report confirming the difficult straits in which the majority of hospitals and health systems across the U.S. continue to find themselves, the latest report out of the Chicago-based consulting firm Kaufman Hall finds hospital operating margins remaining in rough territory as of late this summer.

The press release to Kaufman Hall’s “National Hospital Flash Report: September 2022,” published to its website on Oct. 3, began thus: “Hospitals continue to wrestle with fluctuating margins in 2022 due to high expenses and low volume compared to pre-pandemic levels, making it likely that they will end the year in the red, according to the latest National Hospital Flash Report from Kaufman Hall. The median year-to-date operating margin index was -0.3% in August. Operating margins improved slightly in August, increasing by a median of 4.2 percentage points over July 2022, but remain down by a median of 2.1 percentage points from August 2021.”

Meanwhile, there was mixed news on volume for hospital-based organizations in August. The press release noted that “Outpatient volume increased in August, as more patients returned to hospitals for elective procedures. Operating room minutes increased 13.6 percent from July 2022 and were up 5.5 percent year-over-year but remain down relative to pre-pandemic levels. Patient lengths of stay dropped 2.1 percent from July 2022 and 2.7 percent from August 2021. Patient days rose 0.7 percent from July to August, but were down 7.9 percent compared to August 2021. Emergency department visits increased 1.1 percent from July 2022 to August.”

“August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, and author of the report, said in a statement contained in the press release “Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels. In addition, hospitals need to reckon with new market entrants, like urgent care centers and free-standing surgery centers, that are chipping away at hospital outpatient revenues and overall margins.”

The complexity of all of this was shown by the following: as the press release went on to note, “Increases in volume improved hospitals’ revenue performance in August. Gross operating revenue was up 9.1 percent from July 2022. Outpatient revenue jumped 10.9 percent month-over-month, while inpatient revenue increased 4.9 percent.” But, “As revenues increased, so did expenses. Total expenses increased 3.3 percent from July 2022 and 6% from August 2021. Experts from Kaufman Hall point to supplies and medications as major drivers of the increase, with total labor expenses up 1.3 percent from July.” “Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward,” Swanson said, adding that “competition for outpatient care could make the journey longer and bumpier than anticipated.”

In its “Takeaways” section, the report noted the following:

“Takeaways at a Glance:

1.     Volumes were higher in August than in July, boosting revenue. However, costs still climbed slightly month-over-month as hospitals and health systems continue to shoulder heightened expense loads.

2.      Expenses rose, but not as much as revenue. Supplies and expensive drugs contributed to this uptick more than labor costs, which remain elevated.

3.      Outpatient revenue slightly drove up margin. This metric is substantially higher than it was in August of 2021. It demonstrated the most growth month-over-month as patients scheduled more elective procedures.

4.      Hospitals are still facing extreme difficult. Nine months into a challenging year, margins have fluctuated wildly. Although most metrics improved from July to August, organizations are still operating with negative margins and well below pre-pandemic levels.

5.      New market entrants present strategic challenges. As disruptors chip away at outpatient volume, hospitals should reimagine how to deliver care in non-hospital settings as part of their long-term planning.”

The report can be accessed here.

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