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Hospital margins decline for second consecutive month

by John R. Fischer, Senior Reporter | April 01, 2022
Business Affairs
Hospital margins declined for a second consecutive month.
Hospital operating margins fell below sustainable levels for a second consecutive month in February, as providers struggled to cope with the effects of the Omicron surge.

Data from Kaufman Hall showed decreasing inpatient volumes and a struggle among outpatient practices to recover visitor numbers, despite the decrease in COVID-19 cases and hospitalizations. Hospitals continued to see high expenses compared to previous years, due partially to the nationwide labor shortage and global supply chain challenges.

Margins rose from -4.52% in January to -3.45%, according to the Kaufman Hall Operating Margin Index, but most U.S. hospitals still saw declines, which brought the month-to-month median change in operating margin down 11.8%. Compared to its state just before the pandemic in February 2020, the median change was down 42.4%.

The findings were reported in the latest issue of the company’s National Hospital Flash Report. “The metrics indicate a challenging recovery from the Omicron surge in the coming months,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, in a statement.

Compared to January, gross operating revenue fell 7.4%, outpatient revenue by 5% and inpatient revenue from 19.3%. Low volume caused month-over-month declines but provided temporary relief for hospital expenses.

Additionally, the drop in COVID-19 hospitalizations led to a 13.3% decrease in patient days (a 7.6% decline when adjusted). Seeing fewer severely ill COVID-19 patients helped hospitals shorten stay and pushed the average length of stay down 5.3%. Adjusted discharges were also down by 0.6% from January, and surgery volumes saw modest increases as patients returned for nonurgent procedures that were delayed during the latest surge. As a result, operating room minutes rose 6.5%.

Total expense per adjusted discharge fell 4.5%, while labor expense per adjusted discharge dropped 6.1% and non-labor expense, by 3.6%. But widespread labor shortage and ongoing supply chain challenges continue to drive up year-over-year adjusted expenses, with total expense per adjusted discharge rising 10.4% and non-labor expense by 8%, compared to February 2021. Labor expenses went up 15.3% year-over-year in spite of lower staff numbers. This was due to wage competition driving up overall labor costs amid a nationwide labor shortage.

More than 900 hospitals from Syntellis Performance Solutions contributed to the National Hospital Flash Report.

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