Hospitals suffer worst financial year since the pandemic

Eleventh-hour financial improvements were not enough for U.S. hospitals, making 2022 "the worst financial year for hospitals and health systems since the start of the COVID-19 pandemic," according to Kaufman Hall. 

The declaration is hardly a surprise as hospitals' median monthly margins lingered in the red throughout the first 11 months of 2022, starting with the -3.4 percent recorded in January, driven by the omicron surge. December was the only month where hospitals realized a positive year-to-date operating margin at 0.2 percent, according to Kaufman Hall's latest "National Flash Hospital Report" — based on data from more than 900 hospitals.

Approximately half of U.S. hospitals finished the year with a negative margin, Kaufman Hall reported.

Labor expenses were a constant source of pressure throughout the year, with both a competitive labor market and greater reliance on more expensive contract labor to meet staffing demands driving hospital expenses that their bottom lines could not outdo, even with increased patient volumes. 

Hospital labor expenses grew by 2 percent from November to December, and total direct expense per provider FTE grew to $592,430 in the fourth quarter of 2022, a 5 percent increase compared to the fourth quarter of 2021.

"As we saw throughout 2022, the labor market was unkind to hospitals and provider groups," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. "Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends."

The analysis also found hospitals experienced increased patient volumes, particularly in outpatient settings as the front door of the hospital shifted away from the emergency department and toward ambulatory and outpatient surgical settings. The net patient revenue per provider FTE rose to $397,493, an 8 percent increase year over year.

"The pandemic fueled a fundamental shift in how patients are choosing to access their routine care," Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said. "Providers are seeing more patients than ever, particularly in primary care settings, and care is moving away from hospitals. Medical groups should seek to improve individual provider productivity and efficiently integrate advanced practice providers to meet the increase in volume and successfully bend the cost curve."

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