Hospitals remain at an operating loss following omicron surge

Mari Devereaux / March 28, 2022

Hospitals saw a median operating margin decline of 11.8% between January and February, as healthcare providers dealt with lower inpatient and outpatient volumes, higher resource costs and the omicron surge's effects.

COVID-19 cases and hospitalizations subsided in February, and hospitals experienced fewer, but more costly expenses due to the nationwide labor shortage and supply chain challenges, according to healthcare consultancy Kaufman Hall, which reports monthly on the finances of more than 900 mostly not-for-profit hospitals.

"2022 is off to a very difficult start for our nation's hospitals and health systems," said Erik Swanson, senior vice president of data and analytics at Kaufman Hall, in a news release. "Margins, revenues and inpatient volumes declined for most organizations in February, while outpatient care signaled only slow returns. The metrics indicate a challenging recovery from the omicron surge in the coming months."

Hospitals saw a median operating margin index in February of -3.45%, up from -4.52% in January, Kaufman Hall found. Although health systems came closer to climbing out of the red, they were still below sustainable operating margins.

From January to February, gross operating revenue at hospitals decreased by 7.4%, outpatient revenue dropped 5% and inpatient revenue was down 19.3%.

The weekly average of new daily admissions declined by 79% from a peak of 21,622 on January 15 to 4,515 on February 28. These low volumes, though resulting in revenue losses, also offered some relief after the influx of patients during omicron.

Month-over-month, hospitals' total expense per adjusted discharge decreased by 4.5%, and labor expense in particular per adjusted discharge dropped 6.1%.

However, last month's labor expense per adjusted discharge grew by 15.3% compared to February 2021, as wage competition drove up overall labor costs year-over-year.

Despite a decrease in outpatient revenue, surgery volumes saw moderate increases as patients returned for delayed procedures after the latest surge. Operating room minutes rose 6.5% month-over-month from January to February.

With fewer higher-acuity patients as COVID-19 cases and hospitalizations dropped in February, the average length of stay in hospitals declined by 5.3% month-over-month.

Struggles with staff shortage-related costs, delays in outpatient visit and elective service recovery and overall decreased margins have been recurring themes across earlier reports as hospitals continue to feel the pandemic's chokehold on their operations.

The median change in hospitals' operating margin was down 42.4% month-over-month compared to pre-pandemic levels in February 2020.