Operating margins up but still in the red as expenses soar
Expenses in June were generally down from May but remain extremely elevated from prepandemic levels.
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Hospital operating margins were up slightly from May to June but were still negative overall due to still-soaring expenses, according to the latest Flash Report from Kaufman Hall.
Margins were still significantly lower than prepandemic levels – even when compared to May 2021. Outpatient volumes in June were up from the previous month, and expenses were generally down from May but remain extremely elevated from prepandemic levels.
The median Kaufman Hall Year-To-Date Operating Margin Index reflecting actual margins was -0.09% through June. The median change in operating margin in June was up 30.8% from May but down 49.3% from June 2021. The median change in Operating EBITDA Margin in June was up 23.5% month-over-month but down 35% from June 2021.
WHAT'S THE IMPACT?
Outpatient volumes rose in June, with operating room minutes up 2.4% from last month but down 4.8% year-over-year (YOY). In June, length of stay dropped 2.1% from May but was up 2.8% from June 2021.
Patient days dropped 2.6% from May to June but were up 0.5% from June 2021 levels. Adjusted discharges grew 1.8% month-over-month and were up 0.1% compared to June 2021, while emergency department visits dropped 2.6% from May to June but were still up by 2.6% YOY.
Volume increases led to slightly improved revenue performance in June. Gross operating revenue in June, which rose 1.2% from May and 4.1% YOY, was up 6.2% year-to-date (YTD). Similarly, outpatient revenue ticked up 2.6% from May levels, 4.7% YOY and 7.8% YTD. Inpatient revenue in June dropped 0.9% from May but was up 2.2% from June 2021 and 4.6% YTD.
Total expenses in June dipped 1.3% from May but were still up 7.5% from June 2021. Inflation and labor shortages contributed to total costs, climbing 9.5% YTD.
Labor expense per adjusted discharge in June dropped 6.7% from May but was up 13.4% YTD, while full-time employees per adjusted occupied bed was down 4.8% from May, indicating increased efficiency in the past month.
From May to June, total expense per adjusted discharge fell 3.6% and labor expense per adjusted discharge dropped 6.7%.
THE LARGER TREND
Labor challenges spurred Moody's Investors Service to adopt a negative credit outlook for the healthcare sector, with a December 2021 report showing that the main factors are nursing shortages and increased labor costs, which are projected to decrease operating cash flow by between 2% and 9%, amid comparatively modest revenue gains.
The shortages, while mostly reducing the availability of nurses and other skilled staff, such as lab technicians, will also affect less skilled and entry-level positions. Other factors pushing expenses higher are supply-chain disruptions, increased drug costs, higher inflation and increased investment in cybersecurity.
Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com
