Hospitals' margins ticked downward in January but are still better off than much of 2022

Nationwide hospital finances opened the year stronger than last year’s omicron-afflicted January but still lag behind the opening frames of 2021 and 2020, according to the latest Kaufman Hall monthly report.

The firm recorded a median year-to-date operating margin index of -1% across 900-plus hospitals for the month of January, down from December’s -0.7%, January 2021’s -0.1% and January 2020’s 3.1%. The same metric cratered at -3.7% in January 2022.

The most recent numbers represent an extension of the cost, volume and care site trends that dragged down hospital finances through 2022, Kaufman Hall wrote.

Though hospital and health system leaders have suggested that the industry’s expense pressures and weak revenue growth are starting to improve, Kaufman Hall’s report suggested several volume metrics and labor spending trended in the wrong direction for hospitals. Additionally, the month-to-month median margin drop outlined in the report could be attributed to hospitals’ top-of-the-year purchasing, the firm said.

“While we have seen a stabilization in operating margins over the past several months, the trendline continues to show that hospitals will be in a tough spot financially for the foreseeable future,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said in a release. “With future COVID surges possible and challenging financial months ahead for hospitals, managing cash on hand will be critical to weathering the storm.”

Hospitals’ total net operating revenue fell 3% month over month but is up 5% from last January year over year, according to the report. Inpatient and outpatient revenue were both up 2% from December, though the former is down 1% from January 2022 as the latter was up 18%.

Net patient service revenue per adjusted discharge was down 1% from December and down 10% year over year, per the report. Net patient service revenue per adjusted patient day was down 3% month over month and flat year over year.

Adjusted discharges were down 2% month over month and up 13% year over year, though adjusted patient days was up 1% month over month and 6% year over year. Average length of stay rose 4% from December and fell 8% compared to last year.

Hospitals’ total expense rose 1% month over month and 2% from last January. This was split by total labor expense’s 3% month-over-month increase and 1% year-over-year decrease and total non-labor expense’s 1% month-over-month decrease and 5% year- over-year increase.

When looking at costs per adjusted discharge, total expense rose 3% month over month and fell 14% year over year. Labor expense per adjusted discharge rose 5% month over month and plummeted 18% year over year, whereas non-labor expense per adjusted discharge rose 1% month over month and fell 10% year over year.

The numbers are in line with comments from hospital and health system leaders, which often point to lower patient acuity due to a drop-off of COVID-19 patients. But while normal seasonal trends are making their way back to the healthcare system, a growing transition to outpatient care locations will remain a post-pandemic challenge for many hospitals, Kaufman Hall noted.

“The trends in increased drug spending and decreased patient volume are indicators of a new landscape in how patients are utilizing hospital services in their care experience,” Swanson said. “Hospitals continue to see outpatient sites driving increased revenue. Hospitals must continue to explore how to treat lower-acuity patients in novel settings as patient volumes shift to outpatient locations.”

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