Alabama hospitals’ operating income plummeted $738 million below pre-pandemic numbers in 2022 and sunk even further to a $936 million drop when excluding government stimulus funding, according to a new report (PDF) solicited by the Alabama Hospital Association and prepared by Kaufman Hall.
The latest financial plea from a state hospital group highlights a -79% change in median operating margins in 2022 compared to 2019 (-103% without stimulus). These declines are roughly triple that reported by Kaufman Hall for the nationwide hospital sector.
“The margin decline is far more severe than those experienced nationwide,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall and the report’s lead, said during a press conference presentation on the new numbers. “Nationally, these [are the] same headwinds and challenges and pressures all hospitals across the country are facing. But those impacts are much more profound in Alabama.”
Half of all hospitals across Alabama ended the year with negative margins, up from 2021’s 40% and 2019’s 22%, per the report. The state’s hospitals have now collectively lost $1.5 billion of income since the beginning of the pandemic.
Those numbers “should be the canary in the coal mine” for state and federal leaders to step in if they want to prevent systemic collapse, Alabama Hospital Association President Donald Williamson, M.D., said.
“This study demonstrates that we are likely on a collision course with disaster, and we have only a short window to avoid losing access to services or seeing some hospitals close,” Williamson said in a release. “While the access crisis will be worse in already underserved rural areas, as local hospitals close and patients pursue care in larger centers, many of the financially precarious urban facilities may not have the resources or capacity to absorb the volume.”
The culprits, per the report, are “significantly elevated” expenses and a slew of unprofitable volume trends.
Total expenses have increased by almost $2.6 billion (20%) since 2019 while labor expenses were up nearly $1.4 billion (30%), Kaufman Hall found. Medical supply (17%) and drug expenses (14%) were also elevated to a lesser extent.
Meanwhile, Alabama hospitals’ patient discharges, patient days, surgical cases and ED visits were all stronger than in 2020 and 2021 but remain below pre-pandemic counts. Average length of stay in 2022 was also 6% higher than in 2019, translating to higher treatment costs without a corresponding bump in revenue, the advisory firm wrote in its report.
Swanson noted that some of the lost volumes due to people instead opting for non-hospital care, whether that be from an ambulatory surgery center or retail pharmacies. These trends plus the substantial number of people deferring care until it’s needed has raised the average acuity hospitals are seeing, he said.
Additionally, the firm saw jumps in ED visit rates that generally aligned with spikes in COVID-19 cases in the state. Adding an uptick of behavioral health patients presenting at EDs and hospitals’ workforce shortages have together “led to an increased stress in the ED,” Swanson said.
The Alabama Hospital Association said it is seeking additional relief funds to avoid “a collapse of the system.” Joseph Marchant, the organization’s chairman as well as the CEO of Bibb Medical Center, underscored the appeal by highlighting the role hospitals play in Alabama’s local economies.
“There is not one area of our state and local economic infrastructure that doesn’t depend on hospitals and other healthcare providers,” he said in a release. “In Bibb County, our hospital is one of the largest employers, and because of the hospital, our county has doctors, pharmacies, home health and other services. We also help attract new businesses, support existing ones and contribute substantially to the local tax base.”
The Alabama Hospital Association’s warnings echo those given by other state industry groups in recent months.
The Texas Hospital Association said in November that nearly 1 in 10 of the state’s hospitals were at risk of closure, with that number increasing to 26% for rural facilities.
The Washington State Hospital Association pointed to almost $1.7 billion in net operating losses during the first nine months of 2022 as well as substantial capacity constraints and patient backlogs.
The Colorado Hospital Association also published a report in January outlining a 49% drop in operating margins from 2019, landing at odds with the state’s governor over recent comments surrounding hospital profits and the cost of care for patients.