Hospital margins remain in red for 4th straight month

Hospitals and health systems that expected to see their finances improve in the spring have met disappointment.

Hospitals endured negative operating margins again in April, marking the fourth consecutive month margins have been in the red, according to the latest National Hospital Flash Report released by Kaufman Hall Tuesday.

Health systems saw a substantial drop in revenue and volume in April, and they continue to struggle with expenses. The downturn in volume in April came after an uptick the previous month, but analysts have projected health systems and hospitals are looking at a long financial recovery.

“The first four months of the year have been highly challenging for hospitals and health systems, and do not bode well for the remainder of the year,” the report stated. “Even if margins cumulatively return to pre-pandemic levels, many will still end up with substantially depressed margins at year’s end.”

The median Kaufman Hall Year-To-Date (YTD) Operating Margin Index was -3.09% through April. Hospital operating margins had been positive for 11 consecutive months before January 2022, which began a slide that has lasted four months.

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Hospitals endured a punishing start to the year, with record COVID-19 cases and hospitalizations straining systems in January. Health systems also postponed many non-urgent procedures to preserve staff and resources, but took a hit in revenue as well. And hospitals lagged again in February and March.

Gross operating revenue fell 7% in April compared to March. Outpatient revenue decreased 7% from March to April, while inpatient revenue declined by 7.1% month over month.

Year-to-date, gross operating revenue has risen by 6.6%. Outpatient revenue has climbed 8.5% year-to-date, while inpatient revenue rose 5.3% so far this year.

Patient days fell 5.7% in April compared to March, and are 1.8% lower compared to April 2021. The average length of stay fell 2.2% from March to April, though it was 3.5% higher than April 2021.

Hospitals performed fewer surgical procedures in April, the report suggests. Operating room minutes dropped 8.9% in April compared to March, and are down 6.2% compared to April 2021.

“Volumes remained low this past month, as a growing number of infected patients likely remained home to sequester themselves with the virus,” the report stated. “Other patients might have delayed care due to perceived danger over rising cases.”

Hospitals continue to face higher expenses, although they improved a bit in April. Total expenses fell 4.3% compared to March, but they are 8.3% higher year over year.

While hardly a problem specific to hospitals, the report notes inflation is taking a toll on the economy. Inflation rose 8.3% in April compared to the same month in 2021.

In addition to the other financial challenges, hospitals are also facing higher borrowing costs after the Federal Reserve has raised its key interest rate twice in the past few months.

Some analysts have said smaller hospitals and health systems face an especially difficult road and some may need to merge with other systems to stay alive. Diane Swonk, chief economist at Grant Thornton, projected earlier this year that some hospitals are on the brink of closure.