Hospitals struggle with margins

Operating margins slightly improve, but low volumes hurt overall performance

High expenses and low volumes are creating fluctuating margins in 2022 for hospitals, according to the National Hospital Flash Report from Kaufman Hall.

For the eighth straight month, hospitals median operating margins are in the red. The median year-to-date operating margin index was -0.3% in August, an increase of 4.2 percentage points compared to July, but remain down 2.1 percentage points compared to August 2021.

Outpatient volumes increased in August as more elective procedures are performed as the pandemic declines, with operating room minutes up 13.6% from July 2022 and up 5.5% year over year, but that is still below pre-pandemic levels. Patient lengths of stay decreased 2.1% from July 2022 and 2.7% from August 2021. Patient days rose 0.7% from July to August, but were down 7.9% compared to August 2021. Emergency department visits increased 1.1% from July 2022 to August.

“August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues,” said Erik Swanson, senior vice president of data and analytics with Kaufman Hall, in a statement. “Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels. In addition, hospitals need to reckon with new market entrants, like urgent care centers and free-standing surgery centers, that are chipping away at hospital outpatient revenues and overall margins.”

Increases in volume improved hospitals’ revenue performance in August. Gross operating revenue was up 9.1% from July 2022. Outpatient revenue increased 10.9% month-over-month, while inpatient revenue increased 4.9%.

As revenue increased, so did expenses. Total expenses increased 3.3% from July 2022 and 6% from August 2021. Experts from Kaufman Hall point to supplies and medications as major drivers of the increase, with total labor expenses up 1.3% from July.

“Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward,” Swanson said, adding that “competition for outpatient care could make the journey longer and bumpier than anticipated.”

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