Hospitals faring better than last year, but a difficult path lies ahead

Hospitals are beginning the year with a little more momentum than a year ago, but that isn’t exactly a cause for celebration.

Health systems performed better in January 2023 than they did in the first month of 2022, according to Kaufman Hall, the healthcare consulting firm. Kaufman Hall released its monthly National Hospital Flash Report on Tuesday.

Still, health systems continue to lag behind pre-pandemic levels, and that’s probably going to be the case for the near future, according to the report. It’s more discouraging news for hospitals, who endured their worst year financially of the COVID-19 pandemic in 2022. And hospitals slipped in some ways compared to December.

For hospitals, 2023 may represent a new normal, Kaufman Hall says.

The numbers are admittedly better than January 2022, when hospitals were reeling with a flood of patients due to the Omicron variant. Kaufman Hall reports the median year-to-date operating margin index for hospitals was -1% in January 2023, compared to -3.7% in January 2022.

Still, the operating margin index trailed that of January 2021 (-0.1%) and 2020 (3.1%). Month-over-month, the operating margin fell from -0.7% in December to -1% in January.

Hospitals should continue to expect financial headwinds, said Erik Swanson, senior vice president of data and analytics with Kaufman Hall.

“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,” Swanson said in a statement. “With future COVID surges possible and challenging financial months ahead for hospitals, managing cash on hand will be critical to weathering the storm.”

• Read more: Hospitals should brace for difficult 2023, but there’s light at the end of the tunnel, analysts say

Hospitals fell in some areas compared to December, according to the report.

Total revenues, patient volumes, and emergency department visits dropped in January 2023, compared to December 2022. Total net operating revenue dropped 3% month-over-month.

Emergency department visits fell 5% from December 2022 to January 2023, and discharges fell 2% month-over-month, and operating room minutes were flat.

At the same time, expenses rose 1% month-over-month, and labor expenses rose 3% from December 2022 to January 2023. Hospitals typically make many of their purchases for the year in January, the report noted.

• Read more: More hospital mergers should be coming in 2023

Health systems should also expect higher drug costs. Hospital drug expenses are 12% higher than in 2020. Hospitals also need to get accustomed to patients shifting more toward outpatient facilities, Swanson said.

“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,” Swanson said in a statement.

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

The report draws data from more than 900 hospitals from Syntellis Performance Solutions.