Kaufman Hall: Hospitals, Medical Groups Ended Q3 in Tough Financial Straits

Nov. 3, 2022
Kaufman Hall’s latest reports on hospital and physician group finances find both hospitals and physician groups in difficult financial straits in the third quarter of 2022

Both hospital-based organizations and physician groups ended the third quarter of 2022 in difficult financial straits, with hospitals’ operating margins ending in the negative nationwide for a ninth month in a row, and both hospitals and medical groups held down by high levels of expenses; those are the findings in a pair of twin reports from the Chicago-based consulting firm Kaufman Hall, the firm’s “National Hospital Flash Report: October 2022,” and its “Physician Flash Report: October 2022.”

As the firm’s press release, posted to its website on Thursday morning, Nov. 3, began, “As Just a few months remain in what is shaping up to be one of the worst financial years for hospitals and health systems. As the third quarter came to a close, hospitals, health systems, and physician practices had an unfavorable mix of volumes, revenues, and expenses that continued the year-long trend of negative margins, according to data from Kaufman Hall.”

“Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall,” in a statement included in the press release. “Without a positive margin there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future.”

The press release went on to note that “The median year-to-date operating margin index for hospitals was -0.1 percent in September, for a ninth straight month of negative actual operating margins, according to findings in the latest National Hospital Flash Report. According to the latest Physician Flash Report, the median investment/subsidy per provider full-time equivalent (FTE) reached $227,282 in Q3 2022, slightly up from the second quarter and returning physician practices to a trend of increasing investments/subsidies after a temporary decrease in Q2. Investment/subsidies remain well above where they were at this time last year, with Q3 2021 median investment/subsidies per provider FTE of $190,608.”

As the press release noted, hospitals have been hit with the double whammy of revenue decreases and increased costs, with a portion of the cost increases coming from treating sicker patients. “The average patient length of stay remained steady from last month, with adjusted patient days and emergency department visits both dropping 3 percent from August. Operating room minutes decreased 5 percent from last month, hurting hospital revenues. Adjusted discharges were also down 3 percent, with a slight increase (1%) in observation days driving the drop in discharges. In total, discharges were down 3% from August.”

Meanwhile, the press release noted, “Net patient revenue per provider FTE increased slightly from Q2 to Q3 2022, reaching $389,017 in Q3, driven by increases in net patient revenues in medical specialties and primary care. Expenses outweighed volume and revenue increases, however, with total direct expense per provider at $626,120, up slightly from Q2 and up 9 percent from Q3 2021.”

Ominously, “Hospital total expenses dropped slightly in September, down 1% from August, but are up 3 percent from September 2021 and are up 8 percent.” “Heading into the final quarter of the year, hospitals and physician practices have had little reprieve during a very difficult 2022 from a financial perspective,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Hospitals and physician practices could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”

 The National Hospital Flash Report draws on data from more than 900 hospitals from Syntellis Performance Solutions. The Physician Flash Report draws on data based on more than 200,000 providers, also from Syntellis.

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