Hospitals on track for worst financial year in decades

Healthcare systems in the U.S. have had a challenging year, and they are on track for their worst financial year in decades, according to an Oct. 25 report from Health Affairs.

Dramatic margin fluctuations have characterized 2022, and U.S. hospitals are still operating substantially below pre-pandemic levels. Most metrics improved month-over-month in August as revenues and expenses climbed compared to July. However, most organizations are in poor shape with a negative operating margin, according to the report. 

Several factors suggest hospital margins will continue to face challenges in the coming years. The labor shortage is noted as the primary driver for rising hospital costs. Nursing labor is a critical point as the report indicates hospitals have lost about 105,000 employees, and nursing vacancies have more than doubled. In response, hospitals have relied on expensive contract nurses and extended overtime hours, which caused labor costs to surge. The national nursing shortage is a continuing problem as a substantial segment of the labor force is approaching retirement, and the shortage of new nurses is projected to reach 450,000 by 2025. 

Payment rates will eventually adjust to rising costs, which are likely to occur slowly and unevenly, according to the report. Medicare rates, adjusted annually based on inflation, are projected to undershoot hospital costs and are expected to widen the gap between costs and payments. 

Economic uncertainty and the threat of recession are expected to create continued disruptions in patient volumes. While healthcare has been referred to as "recession-proof," high-deductible healthcare plans and more aggressive cost-sharing mechanisms have exposed patients to costs, making them more likely to weigh them against other household expenditures. 

Combined, these factors suggest that the current financial pressures are unlikely to resolve in the short term.

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