Expenses push major health systems to operating margins under 1%

Some of the nation's largest nonprofit health systems, including St. Louis-based Ascension and Chicago-based CommonSpirit Health, are feeling the financial pinch from the COVID-19 pandemic. 

Although hospital revenue and volume saw an upswing in the last quarter of 2021 — largely driven by COVID-19 hospitalization surges and higher-acuity patients — growing expenses are still offsetting gains in these areas for many hospitals.

CommonSpirit, for example, recorded an operating loss of $81 million in the three-month period ending Dec. 31, 2021, despite seeing revenues rise 7.2 percent year over year to $8.9 billion. The 140-hospital system attributed the loss, and negative 0.9 percent operating margin, to higher expenses tied to labor and supply costs. Supply costs rose 11.6 percent year over year, and labor expenses per adjusted admission were up 12.3 percent as a result of higher-than-normal contract labor costs, increased incentive and overtime pay and a high number of staff who were out sick.

Other nonprofit health systems, citing growing expenses tied to the pandemic, also posted slim operating margins in their most recent financial reports.

Ascension saw its operating margin fall below 1 percent in the three months ending Dec. 31, 2021. The 142-hospital system recorded an operating income of $61,400 in the second quarter of fiscal year 2022 while posting overall revenue of $7.3 billion and an increase in net patient service revenue. The health system's expenses increased year over year to just under $7.3 billion.

Boston-based Mass General Brigham also recorded a narrow operating margin of 0.2 percent in the three months ending Dec. 31, 2021. The health system saw its revenue grow 7.3 percent year over year to $4.1 billion but also saw expenses rise 10.9 percent to just under $4.1 billion. 

Similarly, in the 12 months ending Dec. 31, Oakland, Calif.-based Kaiser Permanente saw its operating income fall to $611 million, representing an operating margin of 0.7 percent. Kaiser attributed the sharp decrease in operating income to an increase in care delivery expenses amid different COVID-19 surges. The health system's revenue was $93.1 billion in 2021 while expenses rose 6.9 percent to $92.5 billion in 2021. 

While these major hospital operators saw narrow operating margins, many ended the period with profits, mainly driven by nonoperating gains.

Many hospitals across the U.S. have been sounding the alarm over rising expenses. This has led the American Hospital Association to urge Congress to add $25 billion in additional relief to help providers across the nation address financial challenges attributed to surges tied to the omicron and delta variants. 

"The lack of PRF dollars to address issues wrought by the delta and omicron surges has left many hospitals facing overwhelming financial and operational challenges," the AHA said. 

 

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