Percent of Texas hospitals at serious risk of closure has nearly doubled since 2020

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Nearly one out of every 10 Texas hospitals is at serious risk of closure, and nearly half of all Texas hospitals are facing negative operating margins this year, according to a new report released this week from Kaufman Hall.

The culprit: COVID-19.

Due principally to the profound impact of the pandemic, the percentage of Texas hospitals at serious risk of closure has nearly doubled since 2020 to 9.2% in 2022. While support from the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act helped lessen the closure risk for Texas hospitals in 2020 and 2021, the risk has steadily grown over time.

Margins, meanwhile, are still down compared to before the pandemic. Even with stimulus support, operating margins were below pre-pandemic levels in 2020. But there is no further federal support on the horizon. 

While conditions improved in 2021, 2022 has been very difficult, the report found, with margins 24.1% below 2019 levels. Nearly half of Texas hospitals have seen negative operating margins in 2022, up from roughly a third in 2019, meaning hospital revenue is not covering the cost of patient care.

Texas Hospital Association President John Hawkins, speaking on November 30 in a reporter briefing on the Kaufman Hall report, noted that half the states' hospitals are currently operating in the red.

"This will impact patient care as we're already seeing in the pediatric space right now," he said.

He added, "The closure risk is more real for rural hospitals. Texas led the nation in closures."

There has not yet been an urban hospital closure, according to Hawkins, because those are operated by larger health systems. But many such hospitals are already closing down service lines and access points in the community, with a move toward outpatient care.

"When you're operating in the red, that's the first place you're going to look," he said, referring to outpatient access.

Hurting matters further are expenses, which remain $33.2 billion higher than pre-pandemic levels, outpacing any revenue increases. Rising expenses for both labor and medical supplies have contributed to the increase – and total expenses are cumulatively 20% above pre-pandemic levels.

Hospital discharges, emergency department visits, and operating room minutes in Texas hospitals are significantly lower than pre-pandemic levels. But patient days and length of stay are on the rise, indicating that patients who are visiting hospitals have more severe health needs than prior to the pandemic. Also, the labor shortages affecting post-acute care are forcing hospitals to house patients longer, resulting in increased expense without commensurate increases in revenue.

Hospitals have incurred serious losses relative to pre-pandemic levels – including approximately $3.2 billion in 2022 to date during the pandemic – and future federal support is uncertain, as CARES Act funding has largely concluded, the report found.

WHAT'S THE IMPACT?

As Texas hospitals work to stabilize from the pandemic, health leaders are wary of a potential "tripledemic" on the horizon – with mounting pressures from influenza, respiratory syncytial virus (RSV) and COVID-19 cases. This week, Texas pediatric hospital beds are currently 91% occupied, according to data from the U.S. Department of Health and Human Services. Meanwhile, hospitals face skyrocketing expenses, workforce shortages and millions in losses.

According to the Kaufman Hall report, prepared at the request of THA, the findings "underscore the existential financial and operational threats Texas hospitals continue to face two-and-a-half years after the beginning of the pandemic."

The Texas Hospital Association is calling for state and federal support to help ensure hospitals stay open and continue to contribute to local communities. Hospitals in the state are asking for assistance in the areas of financial stability, workforce growth to fill critical open jobs, public health resources, behavioral health resources and greater access to care and healthcare coverage.

At the federal level, hospitals are pushing Congress for solutions to prevent harmful Medicare cuts and a Statutory PAYGO sequester from taking effect.

THE LARGER TREND

Kaufman Hall also did a national report on hospitals for the American Hospital Association. Half of hospitals are nearing the end of the year with negative margins, expenses, staff shortages and fewer patient discharges driving poor performance, the report said.

Twitter: @JELagasse
Email the writer: Jeff.Lagasse@himssmedia.com