Hospitals battling margin declines, higher labor costs: Report

Hospitals are struggling with declining margins and increased labor expenses, according to a new report from Kaufman Hall released Tuesday.

Kaufman Hall’s National Hospital Flash Report found hospitals and healthcare systems nationwide saw margin drops for the second consecutive month in October. The median change in operating margin (excluding federal CARES aid) dropped 12.1% from September to October, according to the report. 

Hospitals in the west, south and midwest, which were hit hardest by spikes in COVID-19 cases, saw steeper margin declines. Hospitals may face more financial pressure in the coming months.

“Performance could continue to suffer in the coming months as hospitals face sustained labor increases and the uncertainties of the emerging Omicron variant,” the report stated.

Overall, hospital volumes generally remain low compared to pre-pandemic levels, according to the report.

Hospitals continued to deal with higher labor costs, the report stated. Labor costs rose 2.7% from September to October, according to the report. And hospital labor expenses have increased 12.6% compared to October 2020.

Still, the higher labor costs don’t reflect bigger staff levels, the report said. Full-time equivalent staffing per beds fell 4.5% compared to October 2020, according to the report.

“Higher salaries prompted by nationwide labor shortages are driving up labor expenses rather than increased staffing levels,” the report stated.

Non-labor expenses dropped 1.1% in October, marking the first decline in months, the report stated. Drug expenses fell 12.6% from September to October, but are 10% higher than they were a year ago, according to the report.

Overall, hospitals did see a slight drop in patient volume after enduring big increases due to spikes of COVID-19 infections earlier this year. In October, patient days decreased by 0.5%, compared to September. The average length of stay fell 1.5% in October after increases in the previous three consecutive months.

Still, patient days and length of stay both are higher than they were a year ago. Patient days remained 6% higher compared to October 2020, while the average length of stay is 4.8% higher compared to the previous year.

The report found some evidence that some elective surgeries could be rebounding. The report found operating room minutes rose 6.8% from September to October. However, operating room minutes remained 6% lower than they were in October 2020.

Emergency department visits dropped 3.3% from September to October, but they are 12.5% higher than they were in October 2020.

Outpatient revenue rose both month-to-month and compared to a year ago. Outpatient revenue increased 1.2% from September to October and is 8.6% higher than in October 2020.

“This suggests that recent pandemic trends have not significantly deterred healthcare consumers from seeking outpatient care,” the report stated.

Gross operating revenue (excluding federal CARES aid) fell 0.1% from September to October. However, gross operating revenue is 9.3% higher than in October 2020.