Expenses continue to rise for physicians and hospitals

As U.S. hospitals and physicians attempt to bounce back from the latest surge of COVID-19, increasing expenses continue to hamper a full rebound.

According to a news release detailing the results of the National Hospital Flash Report and Physician Flash Report from consulting firm Kaufman Hall, the month of September saw hospitals seeing declines across most performance metric and physician group gains being offset by an uptick in investments needed to supplement physician revenue.

September saw hospitals treating large numbers of high-acuity patients, but volumes continued to decrease relative to those before the pandemic. Lower volumes and rising expenses have led to hospitals seeing margins decline despite a revenue increase compared to last year. The median change in operating margin fell 18.2 percent from August to September and 1.7 percent compared to September 2019, when not including federal CARES Act funding, the release says.

Both expenses and revenues continued to rise in September above those seen in the two years prior, but a 3.3 percent drop in outpatient revenue from August may signal consumer worries about accessing care in the most recent surge of COVID-19, according to the release.

“Multiple factors are contributing to alarming and sustained increases in hospital expenses,” Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, says in the release. “Growth in labor expenses are outpacing increases in hours worked, suggesting hospitals are paying more due to nationwide labor shortages. Rising supply and drug expenses also point to worldwide supply chain issues.”

When it comes to physician groups, they saw significant revenue and productivity gains in the second and third quarters outpacing those seen in 2019 and 2020, but expenses rose past pre-pandemic levels for a third straight quarter. The increase was due in part to increases in non-labor expenses like drugs and medical supplies. Due to this, the average investment/subsidy per physician full-time equivalent (FTE) rose to $231,654 in the third quarter of 2021, the release says.

Meanwhile physician productivity, measured as physician work relative value units per FTE, rose 9.4 percent compared to the same period in 2020 and net revenue per physician FTE jumped to $660,762, up 11.4 percent from Q3 2020, according to the release.

“Physician activity has come roaring back in the second and third quarters of this year,” Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall, says in the release. “We’re seeing significant increases in physician productivity and revenues, but higher expenses are driving increases in physician investments. Also concerning is the ever-widening gap between practices requiring the highest versus the lowest levels of investment, suggesting the emergence of clear winners and losers as physician practices prepare for a COVID-19 endemic future.”