Hospital profits decline

Rising expenses, lower volume, and lower revenue drive profit margins lower

Expenses at hospitals continue to climb while profit margins decline, according to an analysis by healthcare consulting firm Kaufman Hall.

The nationwide shortage of health care workers and hospitals’ reliance on contract labor is driving expenses higher and hurting overall profits. Labor expenses increased 37% per patient between 2019 and March 2022. Increased contract labor expenses during the same period rose from just 2% of total labor expenses in 2019 to 11% in 2022. Median hourly wages for contract nurses rose 106% from 2019 to 2022 ($64 in 2019 compared to $132 in 2022), while wages for employed nurses increased 11% over the same period ($35 in 2019 vs. $39 in 2022).

“The pandemic made longstanding labor challenges in the health care sector much worse, making it far more expensive to care for hospitalized patients over the past two years,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall, in a statement. “Skyrocketing labor costs, decreasing patient volume and lower revenues create a perfect storm for steep declines in profit margins. Hospitals now face a number of pressures to attract and retain affordable clinical staff, maintain patient safety, deliver quality services and increase their efficiency.”

Kaufman Hall’s April National Hospital Flash Report shows hospitals’ and health systems’ operating margins were negative for a third consecutive month. The median year-to-date Kaufman Hall Operating Margin Index was -2.43% in March, though the median change in operating margin rose 32.7% over February figures.

Analysts say COVID-19 upended the healthcare workforce and opened hospitals and health systems up to greater competition from non-hospital employers as wages and inflation rose. The Kaufman Hall report cites data showing one-in-five healthcare workers quit their job during the pandemic, and more than one-third of nurses plan to leave their current role by the end of 2022.