Hospitals estimate bleak financial outlook for 2022

Operating margins hurting as expenses climb, COVID-19 pandemic aftermath lingers.

The 2022 financial outlook is grim for hospitals across the United States, with losses mounting into the billions of dollars even in an optimistic estimate.

Costs are rising for the staff, supplies, equipment, and drugs needed for operations so far this year and, with trends expected to continue, relief is not in sight for the remainder of 2022, according to “The Current State of Hospital Finances: Fall 2022 Update.” It is the latest analysis by Kaufman, Hall & Associates, published by the American Hospital Association (AHA).

“Left unaddressed, these financial challenges have the potential to jeopardize access to essential health care services for patients,” AHA said in a statement published this month.

AHA cited COVID-19 surges, increased expenses, and a lack of COVID-19 relief funding as factors hurting the bottom lines for hospitals this year.

“While federal support and relief has tapered off, the fight against COVID hasn’t,” AHA President and CEO Rick Pollack said in AHA’s news release about the report. “Managing the aftermath of the pandemic has placed the vast majority of America’s hospitals in serious financial jeopardy as they experience severe workforce shortages, broken supply chains, the Medicare 2% sequester kicking back in and rapid inflation that has increased the cost of caring.

“These realities translate into access to services being put in jeopardy,” Pollack said. “This deserves the immediate attention of policymakers at every level of government to ensure we are able to keep people healthy and maintain essential public services that our communities depend on. America simply can’t be strong without its hospitals being strong.”

For the first six months of the year, hospitals have seen a -104% percentage change in operating margin, compared to 2019. KaufmanHall’s optimistic forecast estimates a 2022 operating margin down 37%, relative to pre-pandemic levels, and the pessimistic projection is down 133%.

From January to June 2022, 52% of hospitals had negative operating margins, with that figure expected to reach 53% for the year in an optimistic scenario, or up to 68% in a pessimistic forecast.

Meanwhile, expenses have skyrocketed, estimated to rise $135 billion for 2022 vs. 2021. That includes an estimated $57 billion more for employed staff, $29 billion more for contract labor, and $49 billion for nonlabor expenses, including $11 billion more spent on supplies due to inflation, $7 billion more for services contracted to outside vendors, and $1 billion more for drugs this year.

Under a pessimistic scenario, the financial challenges of 2022 will be “incredibly difficult” for hospitals, according to AHA.

“While the impact of future waves of COVID-19 or policy changes is unknown, losses will be in the billions of dollars in 2022 for U.S. hospitals with no foreseeable federal support, which would result in the most difficult year for hospitals and health systems since the beginning of the pandemic,” the report said.

While the outlook may be dismal, it probably is not a surprise as the third quarter of the year winds down.

KaufmanHall this year has published monthly flash reports about hospitals and physicians’ offices, and AHA has sounded the alarm about rural hospital closures. By August, the firm reported hospitals and physicians’ offices had six consecutive months of negative margins for the first half of 2022.