Hospital Financial Performance Still Lags Behind 2020

By Jacqueline LaPointe / March 1, 2023

Hospital financial performance may be hitting a new normal as operating margins improve but remain negative, Kaufman Hall reports.

 Hospital financial performance continues to feel the effect of the COVID-19 pandemic, according to the latest “National Hospital Flash Report” from Kaufman Hall.

The report shows that the median year-to-date (YTD) operating margin index for hospitals was -1 percent in January 2023. The index is higher compared to -3.7 percent in January 2022 but remains lower than the indices in 2021 at -0.1 percent in 2021 and 3.1 percent in 2020.

Additionally, hospital operating margins were down slightly from -0.7 percent in December 2022. However, the report noted that this follows a trend of hospitals making purchases for the year in January.

Kaufman Hall reported last month that 2022 was the worst year financially for hospitals since the start of the COVID-19 pandemic in 2020. The latest report indicates that hospital financial performance is stabilizing, but hospitals continue to face some of the same challenges that made 2022 so rough.

For example, volume was down across several metrics last month, including patient volumes, emergency department visits, and discharges. Revenue was also down compared to December 2022, Kaufman Hall finds. Total net operating revenue decreased by 3 percent month-over-month.

Meanwhile, hospitals are still struggling with high expenses. The report shows that total expenses rose by 1 percent month-over-month. Labor expenses, in particular, increased from December 2022 to January 2023 because of the competitive labor market and hospitals’ need for expensive contract labor, the report states.

Notably, there was also a significant increase in prescription drug expenses last month. The report finds a 12 percent increase compared to the YTD in 2020. The report attributes the recent increase to lower patient volume and longer emergency department stay times, suggesting that hospitals treat sicker patients in inpatient settings.

“The trends in increased drug spending and decreased patient volume are indicators of a new landscape in how patients are utilizing hospital services in their care experience,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, says in a statement.

Since the start of the COVID-19 pandemic, patient volumes have shifted to outpatient settings as patients avoided emergency department visits.

“Hospitals continue to see outpatient sites driving increased revenue,” states Swanson. “Hospitals must continue to explore how to treat lower-acuity patients in novel settings as patient volumes shift to outpatient locations.”

Managing cash on hand will also be critical in the coming year, according to Swanson. A trend of persistent negative margins is emerging and hospitals face possible future surges of COVID-19.

“While we have seen a stabilization in operating margins over the past several months, the trendline continues to show that hospitals will be in a tough spot financially for the foreseeable future,” states Swanson.