For hospitals, 2022 was indeed the worst financial year of the pandemic

Even with a modest rebound in December, 2022 ended up being the worst year of the pandemic financially for hospitals and health systems, Kaufman Hall reported.

About half of the nation’s hospitals finished with negative operating margins, with expenses surpassing revenues, according to the healthcare consulting firm’s latest National Hospital Flash Report, which was released Monday.

December was the only month of the year that Kaufman Hall’s median year-to-date operating margin index wasn’t in negative territory. The index for hospitals was 0.2% in December, ending a streak of 11 consecutive months in the red.

Hospitals continue to struggle with higher labor costs. Erik Swanson, Kaufman Hall’s senior vice president of data and analytics, said that’s going to be a challenge for health systems in the year ahead as well.

“As we saw throughout 2022, the labor market was unkind to hospitals and provider groups,” Swanson said in a statement. “Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends.”

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

Labor expenses rose 9% in 2022, compared to the previous year. Health systems and hospitals paid higher wages to staff, and also spent heavily on contract labor due to staffing shortages.

Total expenses rose 7% from 2021 to 2022, according to the report.

Patients are increasingly choosing care outside of inpatient hospital settings, a trend that was illustrated in the fourth quarter of 2022, Kaufman Hall said. More patients went to ambulatory and outpatient surgery, and fewer patients are going to emergency departments, the firm said.

“The front door of the hospital continues to shift away from the emergency department,” the report stated.

Inpatient revenue was flat in 2022 compared to 2021, but outpatient revenue rose 8%, according to the report. Operating room minutes also were flat in 2022, according to the report.

Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said this presents new opportunities.

“The pandemic fueled a fundamental shift in how patients are choosing to access their routine care,” Bates said in a statement.

“Providers are seeing more patients than ever, particularly in primary care settings, and care is moving away from hospitals. Medical groups should seek to improve individual provider productivity and efficiently integrate advanced practice providers to meet the increase in volume and successfully bend the cost curve," Bates said.

To avoid a repeat of last year, health systems should implement strong workforce management strategies and aim to negotiate better rates from payers. Some health systems will be negotiating with payers in 2023 for the first time since the pandemic, and analysts project those talks are likely to be difficult.

Analysts also project more labor battles with unions representing healthcare workers, including nurses, and they said more strikes are possible.

• Read more: New York nurses went on strike, and it’s just the beginning: ‘We will see more strikes’

Hospitals also continue to be challenged by a decline in discharges, the report noted. Healthcare executives have said another factor in their financial woes is they are continuing to board some patients who are ready to be discharged, but they remain in the hospital due to a lack of beds and staffing at post-acute care facilities.

Hospitals are pressing Washington to offer more aid for continuing to care for such patients.

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