Hospitals faced 'worst financial year since the start of the pandemic' in 2022, Kaufman Hall data show

Hospitals managed to snap an 11-month streak of negative operating margins in December, though the turnaround is little consolation to a sector that weathered “the worst financial year since the start of the pandemic,” Kaufman Hall wrote in its most recent National Hospital Flash Report.

Hospitals had entered 2022 in the midst of an omicron surge that pushed the advisory firm’s industrywide operating margin index measure down to -3.4% and -3.5% in January and February, respectively.

Returning volumes and gradual easing of the “competitive” labor market helped hospitals recover over the course of the year, Kaufman Hall wrote, culminating in December as the hospitals finally broke into the black with a 0.2% operating margin index.

Still, “prolonged” expense increases and nearly a full year of operational losses left “approximately half” of the country’s hospitals to end 2022 with a negative margin, per the report.

“Expense pressures are unlikely to recede in 2023,” Kaufman Hall wrote in the monthly industry report. “Hospitals that embrace better workforce management strategies, secure more stable supply lines and more effectively negotiate with payers are likely to have better financial years in 2023. Hospitals should also leverage their outpatient footprint and improve relationships with post-acute settings to maximize current patient volume trends.”

Hospitals saw a 3% month-over-month increase in net operating revenue in December, driven by a 5% month-over-month gain for inpatient revenue. Looking at the full year, net operating revenue increased 2% over 2021 while inpatient revenue was flat and outpatient revenue grew 8%.

Hospitals’ total expense and total labor expense both rose 2% month over month, though the two measures remain 7% and 9% higher when comparing 2022 to 2021. Total non-labor expense rose 4% month over month and is up 3% for the year. Total expense per adjusted discharge was flat month over month and decreased by 1% when looking at labor expense.

Across volumes, discharges and adjusted discharges rose 5% and 2% month over month, with the former down 2% for the full year and the latter up 3%. Adjusted patient days increased 2% month over month and 3% for the full year as average length of stay remained flat for both. Emergency department visits were down 3% month over month but remain up 8% for the year, while operating room minutes dropped 2% month over month and are up 2% for the year.

Taken together, hospitals saw their operating margins increase 11% over November’s -0.3% median operating margin, Kaufman Hall wrote.

The firm noted that expense challenges are likely to keep up in the coming year, meaning that hospitals should look to capitalize on shifting volume trends if they want revenues to keep pace.

“Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a release.

Kaufman Hall’s monthly reports incorporate information from more than 900 U.S. hospitals, the data from which are collected by Syntellis Performance Solutions.