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Hospital expenses drive negative margins, making it more likely 2022 ends in the red

Press releases may be edited for formatting or style | December 05, 2022 Business Affairs
Hospitals are nearing the end of the year with negative margins, with expenses, staff shortages, and fewer patient discharges driving poor performance, according to the latest National Hospital Flash Report from Kaufman Hall.

Median Operating Margin in the Red for Tenth Straight Month
Kaufman Hall's year-to-date operating margin index for hospitals was -0.5% through October. Operating margins dropped from September, down 2% from the previous month and down 13% from October 2021.

Expense Pressures Drive Poor Performance
Hospitals' total expenses increased slightly in October from already elevated levels in September, outpacing revenues. Total expenses increased 1% from the previous month, while total labor expenses increased 3%. Kaufman Hall experts identify a few bright spots in hospital expenses, with supply and drug expenses down slightly from September 2022.

"Record-high expenses across the economy have not eased up, leaving hospitals in a precarious financial position as we look to the end of the year," said Erik Swanson, senior vice president of data and analytics with Kaufman Hall. "With the labor market in the healthcare sector still highly competitive, hospitals are feeling the financial pressure of needing to attract and retain workers with significant increases in salaries."

Emergency Department and Operating Room Minutes Increase Slightly
Hospitals saw modest increases in emergency department (ED) visits (3%) and operating room minutes (2%) over September figures, contributing to a 2% increase in gross operating revenue from the previous month. The increase in ED traffic could, however, have a straining effect on the nation's ED workforce as patients are unable to be admitted to inpatient settings due to staff shortages. In many instances, this has led to patients being boarded in the ED.

Hospitals Struggle to Discharge Patients
Staff shortages across hospitals and post-acute settings have resulted in fewer patient discharges and longer lengths of stay. Adjusted discharges were down 1% from September 2022 and average length of stay increased 3%. The longer stays, however, have not resulted in additional revenue for hospitals.

"Every aspect of patient care—from being admitted, to treatment, to discharge—is affected by the labor shortage and as we head into the virus season and potential new waves of COVID-19 the pressures on hospitals and their staff could mount," said Swanson. "The October data reinforce what we have known for several months, 2022 has been and will continue to be a very difficult financial year for the nation's hospitals."

The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report come from Syntellis Performance Solutions.

About Kaufman Hall
Kaufman Hall provides management consulting solutions to help society's foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; performance improvement; treasury and capital markets management; mergers, acquisitions, partnerships, and joint ventures; and real estate.

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