Kaufman Hall: Labor Shortages and Costs Continue to Crush U.S. Hospitals
Deepening labor shortages are driving up labor expenses and damaging hospitals’ bottom lines, as the U.S. moves into a third year living with the COVID-19 pandemic, the Chicago-based consulting and services firm Kaufman Hall noted in a report released on Jan. 4. As the press release announcing the report began, “U.S. hospitals and health systems continued to feel the pressures of rising expenses and nationwide labor shortages in November 2021, according to the latest issue of Kaufman Hall’s National Hospital Flash Report. Volumes and margins remained depressed in November—before the highly contagious Omicron variant was widespread in the United States—while expenses remained highly elevated relative to pre-pandemic trends. COVID-19 hospitalizations jumped more than 25 percent over the course of the month, while actual hospital margins narrowed. The median Kaufman Hall Operating Margin Index was 2.7 percent in November, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the aid, it was 4.1 percent,” the press release noted. The new report draws on Syntellis Performance Solutions data from more than 900 hospitals, the firm noted.
“Widespread labor shortages are driving up already high labor expenses, posing significant operational challenges for our nation’s hospitals,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, in a statement contained in the press release. “Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”
The press release went on to note that, “Compared to pre-pandemic levels in November 2019, the median change in Operating Margin remained depressed, and was down 22.1 percent in November without CARES act funding. Compared to October 2021, however, the median change in Operating Margin (less CARES) was up 8.1 percent following two months of month-over-month declines. Hospital volumes softened in November, as concerns over the latest surge in COVID-19 cases drove month-over-month declines across most volume metrics. Discharges dropped 4.8 percent, Adjusted Discharges declined 3.9 percent, and Adjusted Patient Days decreased 2.4 percent month-over-month. At the same time, Average Length of Stay increased 0.8% month-over-month and was up 8.6 percent versus November 2019, reflecting an increase in higher acuity cases requiring longer hospital stays, including COVID-19 patients. Sustained expense increases continued to outpace revenue growth. Per-patient expenses rose across all measures in November as hospitals felt the strain of nationwide labor shortages and global supply chain challenges. Total Expense per Adjusted Discharge increased 24.7 percent and Non-Labor Expense per Adjusted Discharge rose 20.5 percent relative to pre-pandemic levels.”
What’s more, according to the report, “Labor expenses in particular continued to climb, even with lower staffing levels. Labor Expense per Adjusted Discharge rose 26.4 percent compared to pre-pandemic performance, and 2.7% month-over-month despite a 1% decrease in Full-Time Equivalents per Adjusted Occupied Bed. Hospitals in the West had the biggest labor expense increase for the month, with Labor Expense per Adjusted Discharge jumping 28.8 percent year-over-year. The month-over-month drop in volumes contributed to a slight decrease in total hospital revenues in November. Compared to October 2021, Gross Operating Revenue (not including CARES) declined 0.6%, Inpatient Revenue dropped 2.6%, and Outpatient Revenue was down 0.7%. Year-to-date and year-over-year revenues remained elevated compared to both 2019 and 2020 levels for a ninth consecutive month.”
A section of the report includes the following “Key Takeaways”:
1. Overall hospital performance remains well below pre-pandemic levels. Relative to pre-pandemic trends, hospital margins remain depressed, as sustained increases in expenses continue to outpace growth in revenues.
2. Volumes softened in November. In November, hospitals experienced a softening of volumes overall, with discharges, patient days and ED visits declining from October levels. However, the average length of stay for patients increased, suggesting an increase in case severity.
3. Consumers may be postponing care unrelated to COVID-19. The decline in ED visits and hospitalizations in November—even as COVID-19 case rates rose nationally due to the Delta variant—suggests that consumers may once again be avoiding or delaying care for non-COVID-19 conditions. The potential impact of the Omicron variant in future months may influence this trend further.
4. Labor expenses and shortages are posing a significant operational challenge. Hospitals continue to grapple with highly elevated labor expenses and ongoing workforce shortages, which have led to lower staffing levels. Hospitals in the West have faced particularly intense labor challenges.
