CHICAGO – November 1, 2021 – Escalating expenses continued to plague U.S. hospitals, health systems, and physician groups in September as healthcare providers grappled with the aftermath of the latest COVID-19 surge, according to two reports released today by Kaufman Hall. Hospitals experienced declines across most performance metrics during what proved to be a challenging month, while physician groups saw some gains but an uptick in the level of investments required to supplement physician revenues.

Hospitals again saw high numbers of high-acuity patients, but overall volumes decreased relative to pre-pandemic levels. Coupled with rising expenses, the trends led to margin declines despite an increase in revenue from prior year. The median change in Operating Margin dropped 18.2% from August to September and 1.7% compared to before the pandemic in September 2019, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Hospitals in regions hardest hit by the recent COVID-19 Delta surge were most affected, with the West, South, and Northeast/Mid-Atlantic all experiencing year-over-year margin declines.

Patient Days decreased 1.4% from August to September, likely due in part to a decline in COVID-19 patients. At the same time, the average patient length of stay rose, discharges decreased, and patient days remained high relative to pre-pandemic levels.
Expenses and revenues in September continued to climb above both 2020 and 2019 levels, but a 3.3% drop in outpatient revenue from August suggests possible consumer worries about accessing care during the recent Delta variant-related surge.

“Multiple factors are contributing to alarming and sustained increases in hospital expenses,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Growth in labor expenses are outpacing increases in hours worked, suggesting hospitals are paying more due to nationwide labor shortages. Rising supply and drug expenses also point to worldwide supply chain issues.”

Meanwhile, physician groups saw significant revenue and productivity gains in the second and third quarters, marking two consecutive quarters of increases relative to both 2020 and 2019 performance. Physician expenses, however, climbed above pre-pandemic levels for a third straight quarter, due in part to increases in non-labor expenses such as drugs and medical supplies. As a result, the average Investment/Subsidy per Physician Full-Time Equivalent (FTE) rose 12.2% in comparison to the third quarter of 2019 to $231,654 in Q3 2021.

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