Kaufman Hall: Hospitals face 4th straight month of declining operating margins

By Robert King / May 31, 2022

Hospitals and health systems in April suffered their fourth straight month of negative operating margins as providers struggle to regroup after the omicron COVID-19 surge, a new report from Kaufman Hall said. 

The consulting firm’s April National Hospital Flash Report (PDF), which offers details on hospital revenues and margins and was released Monday, found declines in patient volumes last month led to lower gross operating revenue. Kaufman found that the rough first four months of 2022 are taking a major toll on systems. 

“Labor shortages, high prices for supplies, and cost increases to treat sicker patients over longer stays are ballooning hospital expenses,” said Erik Swanson, senior vice president of data and analytics for Kaufman Hall. “With a bleak consensus outlook for the U.S. economy, those factors and their effects could be here for a while.”

Kaufman’s calculated median operating margin index for hospitals and health systems was -3.09% throughout last month. The operating margin was down nearly 40% from March and declined 76% from April 2021. 

Operating earnings before interest, taxes, depreciation and amortization declined nearly 27% from March to April and 51.5% compared to the same month in 2021. 

The report also showed that patient volumes and average lengths of stay declined last month as well. 

“Patient days were down 5.7% month-over-month and 1.8% compared to April 2021,” according to the report, which is based on a sample of more than 900 hospitals.

Surgeries were also down in April, with operating room minutes declining nearly 9% from March 2022 and 6.2% from April 2021. 

While patient volumes declined, expenses continued to rise for hospitals across the country. Total expenses for April were down slightly from March at 4.3%. 

“Expenses have continued to rise compared to 2020 and are well above pre-pandemic levels,” the report said. “As labor shortages and supply chain challenges continued, total expenses grew by 8.3% [year-over-year] and 9.6% [year-to-date].”

Higher expenses, especially for labor costs, have been a major headwind for hospital systems across the country. Several major for and nonprofit hospital systems reported losses for the first quarter of 2022 during the major surge of COVID-19 fueled by the omicron variant.

Systems are also facing other headwinds such as a historic rise of inflation in April that increased 8.3% year over year. 

Kaufman doesn’t believe things will immediately turn around for the hospital industry this year, as depressed margins and volumes could likely continue in the months ahead. 

“Even if margins cumulatively return to pre-pandemic levels, many will still end up with substantially depressed margins at year’s end,” the report said.