Rising volumes through August helped hospitals recover some of their margin losses, yet the industry still remains in the red for an eighth straight month, according to Kaufman Hall’s latest industry report.
The advisory firm’s median year-to-date operating margin index landed at -0.3% for August—up a median 4.2 percentage points from last month’s disastrous -1% median index but down a median 2.1 percentage points from August 2021.
The “wildly” fluctuating margins are still “well below pre-pandemic levels” and underscore what has so far been “a challenging year” for hospitals, the group wrote.
“Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a release. “Competition for outpatient care could make the journey longer and bumpier than anticipated.”
Volume growth made all the difference in August, particularly within that contested outpatient setting.
Discharges increased 3.7% month over month but dipped 1.7% from August 2021, while adjusted discharges grew 7% and 5.4% over the same periods, according to the report.
Operating room minutes saw a 13.6% jump over July and a 5.5% increase from the prior year. Average length of stay declined by 2.1% month over month and 2.7% year over year. Patient days increased 0.7% month over month but fell 7.9% from August 2021.
The numbers suggest that an increasing number of patients returned for elective procedures, Kaufman Hall wrote, and highlight the strategic need for hospitals “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,” Swanson said.
August’s volume recovery paved the way for substantial revenue growth, the firm continued.
Gross operating revenue rose 9.1% month over month, comprised of a 10.9% gain on the outpatient side and a 4.9% increase from inpatient operations. The month’s gross operating revenue also represented a 5.5% increase from August 2021 and a 21.8% increase from August 2020.
Expenses continued their upward climb with a 3.3% month-over-month increase and a 6% year-over-year increase. However, this month’s increase appeared to be driven by supply and drug costs more so than labor.
Supply expense rose 10.7% from July to August and was up 0.1% from August 2021, the firm found. Drugs expense was also up 8.8% month over month but was down 9% from the same time last year.
Labor expense per adjusted discharge fell 5.3% from July, “indicating that contract labor utilization and rates are gradually cooling,” but remain up 9.9% year to date, Kaufman Hall wrote.
At the same time, full-time employees per adjusted occupied bed dipped 3.3% from the previous month, “indicating that the labor shortage is still very much in effect,” the firm wrote.
“August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues,” Swanson said. “Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels.”
Kaufman Hall’s monthly reports are based on a sample of more than 900 nationally representative hospitals.
The firm recently released projections suggesting that anywhere from 53% to 68% of the nation’s hospitals will end 2022 with their operations in the red versus the 34% reported in 2019.