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Expenses continue to hamper hospital, health system and physician practice margins

Press releases may be edited for formatting or style | August 02, 2022 Business Affairs
U.S. hospitals, health systems, and physician practices continue to face historically high operating expenses that increased patient volumes and revenues could not counteract, leading to negative margins for the sixth straight month in 2022, according to data from Kaufman Hall's National Hospital Flash Report and Physician Flash Report.

Margins Improve, but 2022 Remains a Financially Challenging Year
The median Kaufman Hall year-to-date operating margin index for hospitals was -0.09% through June, for a sixth straight month of cumulative negative actual operating margins. However, the median change in operating margin in June was up 30.8% compared to May, but down 49.3% from June 2021.

For physician practices, the median investment/subsidy per full-time provider continues to be materially higher than a year ago but showed a slight decrease in the second quarter from the first quarter of the year.

"To say that 2022 has challenged healthcare providers is an understatement," said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. "It's unlikely that hospitals and health systems can undo the damage caused by the COVID waves of earlier this year, especially with material and labor costs at record highs this summer."

Hospital Volumes Level Out, but Revenues Tick Up
Patient length of stay dropped 2.1%, patient days dropped 2.6%, and emergency department visits dropped 2.6% in June compared to May 2022, though all three figures are up when compared to June 2021. Operating room minutes were up 2.4% compared to May 2022. Despite the mixed volume numbers, hospital revenues were up in June. Gross operating revenue was up 1.2% from May 2022.

Physician Practice Volumes Lead to Higher Revenues in Q2
Net patient revenue per provider full-time employee (FTE) rose 5.6% from Q1 2022 to $388,856 in Q2, up significantly from Q2 2020 (38%), but just slightly from Q2 2021 (1%). Increased provider productivity, particularly in primary care and surgical specialties, led to a 3.1% increase in net patient revenue per provider Work Relative Value Unit (wRVU) from Q1 to Q2 2022.

Historically High Expenses Vex Provider Organizations
Total expenses for hospitals dropped slightly in June, down 1.3% from May due to a slight decrease in patient acuity, but are up 7.5% from June 2021 and are up 9.5% year-to-date.

Similarly, while provider compensation dropped in physician practices, expenses continued to escalate with increased patient demand, inflation, and a competitive labor market for support staff leading to a new high for total direct expense per provider FTE in Q2 2022 of $619,682—up 7% from Q2 2021 and 12% from Q2 2020.

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