Hospitals Continue to Be Financially Crushed by COVID-19 Pandemic

Hospitals continue to be crushed financially as well as in terms of staffing and other issues, nearly two years after the COVID-19 pandemic first came to the United States, while physician groups are also struggling with high costs and staffing issues, according to two new reports from the Chicago-based consulting firm Kaufman Hall that were released on Monday, Jan. 31.

A press release announcing the publication of both reports on Monday morning began thus: “The nation’s hospitals, health systems, and physician groups closed the second year of the pandemic amid ballooning expenses exacerbated by nationwide labor shortages and global supply chain challenges. Many providers ended 2021 in a stronger financial position relative to the first year of COVID-19 in 2020, as they have learned to better navigate pandemic volatility. Yet overall performance remains down compared to pre-pandemic levels, according to Kaufman Hall’s latest National Hospital Flash Report and Physician Flash Report. For hospitals,” the press release noted, “volumes rose throughout December, as the rapid spread of the Omicron variant led to a sharp increase in COVID-19 cases. The spike in cases drove a 98 percent increase in COVID-related hospitalizations. Compared to November, Adjusted Discharges rose 5.5 percent, and Adjusted Patient Days increased 3.9 percent. Emergency Department (ED) Visits also jumped 7.3 percent, a trend consistent with earlier surges as more patients show up in EDs with potential COVID-19 symptoms. Compared to the first year of the pandemic, 2021 saw an increase in severely ill patients requiring longer hospital stays, but key volume metrics remained below pre-pandemic 2019 performance.”

Things aren’t entirely bleak. The press release goes on to say that “Actual hospital margins remained thin, but above 2020 levels. The median Kaufman Hall Operating Margin Index for the year was 2.5 percent versus -0.9 percent for 2020, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the aid, it was 4.0 percent in 2021 compared to 2.8 percent in 2020. Increased volumes contributed to month-over-month margin increases. From November to December, the median change in Operating Margin rose 38%, not including CARES. With the aid, it increased 49.5 percent. Compared to December 2019, however, the median change in Operating Margin was down 14.7 percent without CARES.”

But, unsurprisingly, staffing shortages are complicating everything for hospital-based organizations right now. As the press release notes, “Tight competition for healthcare workers pushed expenses up despite lower staffing levels. Total Expense per Adjusted Discharge was up 20.1 percent for the year versus 2019 and Labor Expense per Adjusted Discharge was up 19.1 percent over the same period. Non-Labor Expense per Adjusted Discharge increased 19.9 percent for 2021 versus pre-pandemic levels.”

"As we enter the third year of the pandemic, hospital and health system leaders face worsening labor shortages that are driving up costs across healthcare,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, the author of the hospital report. “Organizations are having to pay high salaries to attract the workforce they need, while also paying more for drugs and other supplies. Managing through these challenges will require organizations to build new levels of agility and efficiencies.”

Indeed, even as inpatient volume has understandably risen across the pandemic, so have the costs, which have turned out to be extremely high for COVID-infected patients. As the press release notes, “The latest COVID-19 surge contributed to increased volumes across most metrics in December. Compared to November, Adjusted Discharges rose 5.5 percent, and Adjusted Patient Days increased 3.9 percent. Emergency Department (ED) Visits also jumped 7.3 percent, a trend consistent with earlier surges as more patients show up in EDs with potential COVID-19 symptoms. Compared to the first year of the pandemic, 2021 saw an increase in severely ill patients requiring longer hospital stays. Throughout 2021, Adjusted Discharges were up 6.9 percent, Adjusted Patient Days were up 11.8 percent, and Average Lengths of Stay were up 3.5 percent versus 2020. Other volume metrics also saw increases, with Operating Room Minutes up 8.3 percent, and ED Visits up 10.9 percent from the previous year.”

Importantly, “Hospitals nationwide continued to struggle with escalating expenses exacerbated by widespread labor shortages and supply chain challenges. Total Expense per Adjusted Discharge decreased 1.8 percent from November to December but was up 3.5 percent for the year versus 2020. Labor expense increases were a major contributor, as tight competition for qualified healthcare workers pushed labor costs up despite lower staffing levels. Labor Expense per Adjusted Discharge was down 2.9 percent month-over-month but was up 4.6% in 2021 versus 2020. Meanwhile, Full-Time Equivalents (FTEs) per Adjusted Occupied Bed (AOB) decreased 0.3 percent month-over-month and were down 8.9% for the year versus 2020. Non-Labor Expense per Adjusted Discharge rose 0.7% month-over-month and was up 2.1% for 2021 versus 2020.”

The full National Hospital Flash Report can be accessed here.

Meanwhile, the physician group practice world has also continued to be rocked by the pandemic. As the press release noted, “Employed physician groups ended 2021 with sizeable gains in physician productivity and revenues relative to the fourth quarter of 2020, but with mounting expenses and high levels of investments/subsidies required to support practice performance. The median Investment/Subsidy per Physician Full-Time Equivalent (FTE) was above late 2019 and late 2020 levels throughout 2021, rising to $263,001 for the fourth quarter. The metric was up 5.9% compared to the third quarter of 2021, driven in part by high expenses that mitigated physician revenue and productivity gains.”

What’s more, “Total Direct Expense per Physician FTE rose to $955,281 in the fourth quarter, up 9 percent versus Q4 2019 and up 16.3 percent versus Q4 2020. Expenses rose even as clinical and front desk staffing levels declined. Support Staff FTEs per 10,000 work Relative Value Units (wRVUs) were down 16.6 percent from the first year of the pandemic in Q4 2020, with staffing level decreases particularly pronounced in Primary Care.”

“Physician expenses rose in the fourth quarter across all specialty cohorts, reflecting widespread challenges. Higher volumes, coupled with labor shortages, are contributing to rising costs,” said Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall. “Healthcare leaders must take a hard look at their direct expenses and find ways to bend the cost curve moving forward.”

The full Physician Flash Report can be accessed here.