Year-End Review-Finance: Hospitals Remain Financially Fragilized

Dec. 22, 2022
Looking back at calendar-year 2022, it’s clear that hospital-based organizations remained financially imperiled throughout the year, with high labor-related costs driving poor margins

If there was a single consistent theme running through the entirety of calendar year 2022, it was this one: patient care organizations—hospital-based organizations in particular—remained financially fragilized throughout the entire year.

At the beginning of next month (January), we’ll know for certain about the fourth quarter of calendar year 2022, but this is what we reported on November 30, about the third quarter of the year: “Experts at the Chicago-based Kaufman Hall consulting firm are once again confirming what patient care organization leaders have been navigating through this year: hospitals and health systems remain in financial trouble nationwide. On Wednesday, Nov. 30, the firm released its ‘National Hospital Flash Report ‘for November, authored by senior vice president Erik Swanson. As the introduction to the report posted to the firm’s website noted, ‘Hospitals are nearing the end of the year with negative margins, with expenses, staff shortages, and fewer patient discharges driving poor performance.’ Indeed, the introduction noted, ‘Kaufman Hall’s year-to-date operating margin index for hospitals was -0.5 percent through October. Operating margins dropped from September, down 2 percent from the previous month and down 13 percent from October 2021.’ Kaufman Hall researchers found that ‘Hospitals’ total expenses increased slightly in October from already elevated levels in September, outpacing revenues. Total expenses increased 1 percent from the previous month, while total labor expenses increased 3 percent. Kaufman Hall experts identify a few bright spots in hospital expenses, with supply and drug expenses down slightly from September 2022.’”

And honestly, the same issues were present in late 2022 that had been present throughout the year: tremendously high staffing costs, based on staffing shortages, especially of nurses, but also of a broad swath of hospital and health system staff members. As Kaufman Hall’s Swanson said in a statement upon the release of the third-quarter report, “Record-high expenses across the economy have not eased up, leaving hospitals in a precarious financial position as we look to the end of the year. With the labor market in the healthcare sector still highly competitive, hospitals are feeling the financial pressure of needing to attract and retain workers with significant increases in salaries.”

Let’s talk about nurses first: the problems at the end of this year were of two types, short-term and longer-term. In the short term, large numbers of nurses had left hospital nursing in 2020 and 2021, and into 2022, leaving hospital-based organizations scrambling to fill shifts, and still paying huge amounts for traveling/agency nurses. Historically, spending money on traveling or agency nurses was something that hospital organizations did on a kind of a “spot” basis, to fill small-ish gaps in their nursing ranks. But so many nurses left hospital nursing during the height/depth of the COVID-19 pandemic that hospitals were forced to rely very heavily on agencies to fill shifts, and that set of expenses alone was enough to fragilize them financially.

There’s a longer-term issue involved, too, though: as a nationwide survey of critical-care nurses found, up to one-third of nurses are planning to leave… The results of that survey were published in Critical Care Nurse online on Oct. 1. Citing overwork and stressful work environments, often with inadequate staffing, the critical care nurses responding to that survey were planning to leave hospital nursing en masse. “Overall, 67 percent of the participants said they plan to leave their current position within the next 3 years. Of those who plan to leave, 38 percent plan to take a different position in clinical nursing, 19 percent plan to take a different position in nonclinical nursing, 15 percent plan to retire, 11 percent plan to return to school, 8 percent plan to leave the profession, 4 percent plan to take time out for family or other personal reasons, and 5% have other reasons for planning to leave. The top responses that participants said could influence them to reconsider include higher salary and benefits (63%, up from 46% in 2018), better staffing (57 percent, up from 50 percent in 2018), and more respect from administration (50 percent, up from 42 percent in 2018).” All that according to report authors Beth Ulrich, D.D., R.N., Linda Cassiday, Ph.D., APRN, Connie Barden, M.S.N., R.N., Natasha Varn-Davis, Ph.D., and Sarah A. Delgado, M.S.N.R.N., in their article entitled “National Nurse Work Environments-October 2021: A Status Report.” Most alarmingly, the mean age of survey respondents, 91l6 percent of whom work in hospitals, was 46.5, meaning that a mass departure of nurses from some of the most vital positions in hospital nursing, could be upon us soon. Other surveys have found that many of the nurses leaving inpatient nursing in the past two years have been not in their 50s and 60s, but in their 30s and 40s, presaging quite a terrible nurse staffing crisis.

Unfortunately there seems to be no easy short-term or perhaps even medium-term solution to any of this, since nurse staffing is something that simply must be maintained in hospitals nationwide; and, more broadly, hospitals are saddled with high overhead costs that outpatient care organizations simply do not have.

What’s more, it’s not just the nurse staffing crisis driving expenses; the Nov. 30 Kaufman Hall report found that “Hospitals continue to face the significant weight of high expenses outpacing revenues, particularly when it comes to the cost of labor. Additionally, hospitals are turning to external sources for services like IT and human resources support, instead of keeping them in-house at a lower cost. Finally, the high cost of materials due to inflation has not abated.”

There are some signs that inflation in supply costs might be abating somewhat. Still, overall inflation in the cost of goods and services nationwide is continuing forward, and even single-digit supply-cost inflation will continue to pose problems for patient care organizations going forward. And, as everyone understands, hospitals are in the unique position of having very high overall operating costs, certainly compared to medical clinics, which lack the inpatient costs that keep hospital-based organizations tied to the need to fill inpatient beds in order to stay afloat.

As a result, as Kaufman Hall’s experts put it, “Hospitals are nearing the end of the year with negative margins, with expenses, staff shortages, and fewer patient discharges driving poor performance.” Indeed, the introduction noted, “Kaufman Hall’s year-to-date operating margin index for hospitals was -0.5 percent through October. Operating margins dropped from September, down 2 percent from the previous month and down 13 percent from October 2021.”

The senior leaders of hospital-based health systems can only hope that some of the financial pressures ease somewhat during calendar year 2023.

Sponsored Recommendations

Clinical Evaluation: An AI Assistant for Primary Care

The AAFP's clinical evaluation offers a detailed analysis of how an innovative AI solution can help relieve physicians' administrative burden and aid them in improving health ...

From Chaos to Clarity: How AI Is Making Sense of Clinical Documentation

From Chaos to Clarity dives deep into how AI Is making sense of disorganized patient data and turning it into evidence-based diagnosis suggestions that physicians can trust, leading...

Bridging the Health Plan/Provider Gap: Data-Driven Collaboration for a Value-Based Future

Download the findings report to understand the current perspective of provider and health plan leaders’ shift to value-based care—with a focus on the gaps holding them back and...

Exploring the future of healthcare with Advanced Practice Providers

Discover how Advanced Practice Providers are transforming healthcare: boosting efficiency, cutting wait times and enhancing patient care through strategic integration and digital...