Kaufman Hall analysis finds improvements not enough to negate overall negative trend for hospital margins in 2022, which remain well below pre-pandemic levels
Hospitals continue to wrestle with fluctuating margins in 2022 due to high expenses and low volume compared to pre-pandemic levels, making it likely that they will end the year in the red, according to the latest National Hospital Flash Report from Kaufman Hall.
Median Operating Margin in the Red for Eighth Straight Month
The median year-to-date operating margin index was -0.3% in August. Operating margins improved slightly in August, increasing by a median of 4.2 percentage points over July 2022, but remain down by a median of 2.1 percentage points from August 2021.
Volume on the Rise, but Hospitals Face New Competition for Outpatient Care
Outpatient volume increased in August, as more patients returned to hospitals for elective procedures. Operating room minutes increased 13.6% from July 2022 and were up 5.5% year-over-year but remain down relative to pre-pandemic levels. Patient lengths of stay dropped 2.1% from July 2022 and 2.7% from August 2021. Patient days rose 0.7% from July to August, but were down 7.9% compared to August 2021. Emergency department visits increased 1.1% from July 2022 to August.
"August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues," said Erik Swanson, senior vice president of data and analytics with Kaufman Hall. "Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels. In addition, hospitals need to reckon with new market entrants, like urgent care centers and free-standing surgery centers, that are chipping away at hospital outpatient revenues and overall margins."
Revenues Grew from July
Increases in volume improved hospitals' revenue performance in August. Gross operating revenue was up 9.1% from July 2022. Outpatient revenue jumped 10.9% month-over-month, while inpatient revenue increased 4.9%.
As revenues increased, so did expenses. Total expenses increased 3.3% from July 2022 and 6% from August 2021. Experts from Kaufman Hall point to supplies and medications as major drivers of the increase, with total labor expenses up 1.3% from July.
"Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward," Swanson said, adding that "competition for outpatient care could make the journey longer and bumpier than anticipated."