Labor shortages, claims denials, supply chain still hamstring hospital margins, survey shows

Healthcare’s days of widespread contract labor reliance may be over, but hospitals and health systems are still frequently reporting labor shortages and other operating hurdles keeping them from healthy margins, according to a new annual survey of 106 organizations.

Two-thirds of those responding to the poll from Kaufman Hall said their organization had run at less than full capacity at some point during the past year due to staffing shortages. Sixty-three percent said they’re having trouble meeting demand for patient access to their physician enterprise, and 32% said patients are more often complaining about that access.

“Having enough healthcare workforce to meet patient demand continues to be one of the most pressing concerns for hospitals and health systems,” Kaufman Hall Managing Director Lance Robinson, who heads the advisory firm’s performance improvement practice, said in a release. “It’s clear that for many, this is a long-term issue. The older generation of providers is moving into retirement without a robust talent pipeline in place to fill the gaps retirees leave behind.”

Nearly every respondent said that their organization is pursuing one or more strategies around recruitment and retention, with 90% noting that they have raised the bottom floor of their pay scales. On the other hand, 60% of respondents said that they’ve seen a decline in contract labor utilization as just 4% said they had seen an increase.

Hospitals have no shortage of issues outside of staffing that are weighing down their operations, Kaufman Hall’s report suggested.

When polled on recent revenue cycle disruptions, respondents frequently (73%) cited an increased rate of denials during the past year and said that the denials “seem particularly acute in markets that have a higher penetration of Medicare Advantage plans,” the firm wrote in the report.

Respondents also frequently pointed to a decline in their percentage of commercially insured patients (52%), a rise in bad debt or uncompensated care (50%) and an increase in the percentage of Medicaid patients (47%).

Volume trends reported by the respondents suggest general improvements from last year and a continued shift from inpatient to outpatient settings, according to the report. More respondents said their inpatient length of stay was decreasing compared to the prior year while responses related to observation length of stay and ER walkouts paint a picture of more modest improvements.

Distribution delays still look to be a major contributor to supply chain disruptions, though the issues affecting hospitals’ supply chain “appear to have improved” compared to last year’s survey, the firm wrote.

Respondents interviewed by Kaufman Hall anticipated “a slow climb back to the 3% to 4% operating margins that help ensure long-term sustainability,” and several reported concerns regarding their debt structure. Specifically, 24% said they had encountered a debt covenant challenge during the past 12 months and 34% said they anticipated such a challenge in the year to come.

“These percentages likely exceed the percentage of organizations that actually breached a covenant: interviews with survey respondents that had indicated a challenge revealed that many feared a breach but ultimately managed to avoid it,” the firm wrote. “Nonetheless, these high percentages reflect the extent to which organizations continue to struggle with financial performance in the post-COVID environment.”

Kaufman Hall’s annual “State of Healthcare Performance Improvement” report polled 106 nationwide hospital and health system leaders, the majority of which hailed from a system with multiple hospitals.

The responses fall in line with trends that have played out across the advisory firm’s monthly industry reports. The latest, reflecting hospital operating data through August, outlined a median year-to-date operating margin index of 1.1% on the back of rising daily revenues and lower per-patient expenses.