Hospitals still in the red despite improving margins
While labor expenses decreased somewhat, margins remained depressed throughout the year.
Photo: Cavan Images/Getty Images
Hospitals struggled with their margins in 2022, and even though those margins improved during the month of November, they remained negative for the first 11 months of the year, according to data published in Kaufman Hall's latest flash report.
The uptick in margin improvement in November was attributable to declining expenses. The average patient length of stay declined slightly, leading to relatively flat revenue. But along with several other key volume metrics, hospital expenses declined, resulting in improved margins.
Like in other industries, significant increases in the cost of labor made it harder for hospitals to see positive margins in 2022. In November, however, hospitals saw labor expenses decrease, potentially due to hospitals relying less on contract labor, which is often more expensive.
One bright spot in the revenue column was hospital outpatient clinics and services. While inpatient service continued to hamper margins, hospitals could lean on their outpatient services to buoy them, according to Kaufman Hall.
WHAT'S THE IMPACT?
"As we've seen in other industries, the significant increases in labor costs have made it harder for hospitals to realize positive margins," said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, in a statement. "Hospitals were fortunately relieved of some financial pressure in November amid a continued competition in the healthcare labor market, potentially due to a shift away from expensive contract labor."
While year-to-date hospital margins are now at -0.2% – a hair better than the -0.3% posted in October – those margins are still down 44% from the same time last year.
Net operating revenue also showed modest growth, at 1% month-over-month and 3% year-to-date. Net patient service revenue per adjusted discharge was down 1% over the year despite a 1% uptick month-over-month.
Adjusted discharges fell 1% month-over-month but were up 1% YTD; the same held true for average length of stay. Operating room minutes remained flat for the year.
"The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues, and rising interest rates," said Swanson. "Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation."
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 were nursing shortages and increased labor costs, which were 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 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
