Omicron expenses hit hospitals hard in January

Margins were negative for the first time in 11 months

Hospitals and health systems were hit hard in January as they were hit with the Omicron surge. COVID-19 cases and hospitalizations peaked at record levels in January because of the rapid spread of the highly contagious variant. The seven-day moving average of new COVID cases jumped 93% within a two-week period, from 417,524 on January 1, to an all-time high of 807,115 on January 15. This drove a corresponding increase in COVID-related hospitalizations, with the seven-day moving average of new daily admissions climbing 54% over the same period, from 14,017 on January 1 to a peak of 21,622 on January 15.

As a result, hospitals suffered financially, according to the Kaufman Hall Hospital Flash Report for February. Hospital margins were negative for the first time in 11 months. The median Kaufman Hall Operating Margin Index was -3.68% without CARES and 3.3% with CARES support.

Outpatient volumes and revenue dropped abruptly as providers delayed nonurgent, outpatient care to mitigate Omicron’s spread and ease demands on hospitals that saw a stark increase in sicker patients requiring longer hospital stays. Meanwhile, hospital expenses continued to climb, spurred by widespread labor shortages and global supply chain challenges. From December to January:

  • The median change in Operating Margin (without CARES) dropped 71.3%
  • Operating Room Minutes declined 15.7%
  • Average Length of Stay was up 8.6%
  • Labor Expense per Adjusted Discharge jumped 14.6%
  • Total Expense per Adjusted Discharge rose 11.6%

Consistent with past surges, hospital performance likely will stabilize somewhat in coming months as a result, but January’s losses could have repercussions throughout 2022. Nationwide labor shortages continue to drive up labor expenses while supply chain challenges are contributing to inflation of non-labor costs, exacerbating hospital operating pressures amid unstable pandemic volumes and revenue.