More pain, no gain for hospitals' operating margins

Hospitals are nearing the end of an exceptionally difficult year for finances with a slight downturn to their operating margins and smaller likelihood of ending the year in the black. 

Kaufman Hall's November "National Hospital Flash Report" — based on data from more than 900 hospitals — found hospitals' median operating margin was -0.5 percent through October. Operating margins dropped 2 percent from September and 13 percent from October 2021.

High expenses continued to outpace revenues, particularly labor expenses. Total labor expenses are up 10 percent year to date and up 3 percent from September to October alone. Total non-labor expenses are up 5 percent year to date and held flat from September to October. 

Hospitals saw a 3 percent boost in emergency department visits and 2 percent boost in operating room minutes in October, with a 2 percent increase in gross operating revenue from the month prior. 

At the same time, hospitals struggled to discharge patients in October due to shortages of labor both internally and in post-acute settings, which resulted in a 3 percent increase in length of stay that did not translate to additional revenue. 

Increased ED traffic could strain hospitals' workers if staff shortages complicate or prevent patient admissions, leading to ED boarding. A dozen medical groups recently alerted President Joe Biden to ED boarding reaching a "crisis point" and becoming a public health emergency.

"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," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said. 

In September, Kaufman Hall noted that expense pressures and volume and revenue declines could force hospitals to make "difficult decisions" about service reductions and cuts. 

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