Omicron, rising expenses bring hospitals another challenging year, Kaufman Hall report finds

Although hospitals finished 2021 in a stronger position than in 2020, performance is still lower than it was before the pandemic for most metrics because of the omicron variant and high expenses, according to the January "National Hospital Flash Report" by healthcare consulting firm Kaufman Hall.

Volumes increased drastically in December 2021 because of the omicron variant, with a 353.5 percent increase in the seven-day moving average of new COVID-19 cases from Dec. 1-31. There was a 98.3 percent increase in COVID-19 hospitalizations in December.

Increased volumes led to higher but still thin hospital margins in 2021 compared to 2020. Excluding CARES Act funding, the median operating margin index was 2.5 percent in 2021, compared to negative 0.9 percent in 2020. Including CARES, it was 4 percent in 2021 compared to 2.8 percent in 2020.

The labor shortage led to higher expenses compared to before the pandemic. Total expense per adjusted discharge increased by 20.1 percent in 2021 compared to 2019, labor expense per adjusted discharge increased by 19.1 percent, and non-labor expense per adjusted discharge was up 19.9 percent.

"As we enter the third year of the pandemic, hospital and health system leaders face worsening labor shortages that are driving up costs across healthcare," said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. "Organizations are having to pay high salaries to attract the workforce they need, while also paying more for drugs and other supplies. Managing through these challenges will require organizations to build new levels of agility and efficiencies."

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