Increasing labor costs hit hospitals

Hospitals and health systems were hit by rising expenses and nationwide labor shortages in November, according to the latest issue of Kaufman Hall’s National Hospital Flash Report.

Patient volume and profit margins remained low in November, and this was before the Omicron variant was widespread in the United States. Expenses remained high compared to pre-pandemic trends.

COVID-19 hospitalizations increased more than 25% over the course of the month, while actual hospital profit margins narrowed.

“Widespread labor shortages are driving up already high labor expenses, posing significant operational challenges for our nation’s hospitals,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, in a statement. “Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”

Hospital volumes decreased in November, as concerns over the latest surge in COVID-19 cases drove month-over-month declines across most volume metrics. Discharges dropped 4.8%, Adjusted Discharges declined 3.9%, and Adjusted Patient Days decreased 2.4% month-over-month. At the same time, Average Length of Stay increased 0.8% month-over-month and was up 8.6% versus November 2019, reflecting an increase in higher acuity cases requiring longer hospital stays, including COVID-19 patients.

Sustained expense increases continued to outpace revenue growth. Per-patient expenses rose across all measures in November as hospitals felt the strain of nationwide labor shortages and global supply chain challenges. Total Expense per Adjusted Discharge increased 24.7% and Non-Labor Expense per Adjusted Discharge rose 20.5% relative to pre-pandemic levels.

Labor expenses increased, even with lower staffing levels.