Hospital margins sink again as labor expenses mount: Kaufman Hall

U.S. hospitals and health systems saw a second consecutive month of margin declines as labor expenses continue to pressure providers, according to a Nov. 30 report from healthcare consulting firm Kaufman Hall

For the report, Kaufman Hall analyzed data from more than 900 hospitals across the U.S. to understand financial performance and volume trends. 

The firm found that the medical change in operating margin was down 12.1 percent from September to October, marking the second month of margin declines. The median operating margin was 3.2 percent in October, not including federal relief. With the aid, the median operating margin was 4.1 percent.

The report found that hospitals in regions hit by the delta-driven COVID-19 surge were most affected by the margin declines. 

"The margin declines in October came even as pressures from treating high levels of serious COVID-19 cases eased," Kaufman Hall wrote in the report. "And with cases and related hospitalizations on the rise in recent weeks — coupled with the uncertainties of the newly emerging Omicron variant — the future outlook for hospitals remains uncertain."

Kaufman Hall noted that total labor expenses increased 2.7 percent from September to October. Additionally, staffing levels decreased 4.5 percent year over year, which highlights the nationwide labor shortage and suggests that higher pay and benefits are pushing up labor expenses despite lower staffing levels. 

"Hospitals and health systems nationwide are feeling the pain of stubbornly high expenses," said Erik Swanson, a senior vice president of data and analytics with Kaufman Hall. "Broader economic trends such as U.S. labor shortages are adding to the extreme pressures of the pandemic."

The report also found that hospitals saw a decrease of inpatient volumes in October compared to September, with patient days decreasing 0.5 percent and the average length of stay declining 1.5 percent. This resulted in a 0.9 percent decrease in inpatient revenue month over month and a 0.1 percent decrease in gross operating revenue. 

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