Meager improvements in hospital expenses weren’t enough to outpace weak revenues during September, resulting in the industry’s ninth consecutive month of negative actual operating margins, according to Kaufman Hall’s latest monthly report.
The group’s median year-to-date operating margin index came in at -0.1% at the close of the third quarter. This is the third month of steady gains in operating margins since a disastrous July when hospitals logged some of the worst margins since the beginning of the COVID-19 pandemic.
The advisory firm warned that the year’s poor margin performance could soon “force hospitals into difficult decisions” around service line offerings.
“Health systems are starting to get a clear picture of what service lines have a positive effect on their margins and which ones are weighing them down,” Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in a statement. “Without a positive margin there is no mission. Health systems must think carefully and strategically about what areas of care they invest in for the future.”
Hospitals’ gross operating revenue (disregarding relief funds) fell 4% month over month, while net patient service revenue per adjusted discharge dipped by 2%. Month-over-month inpatient and outpatient revenue declined 5% and 4%, respectively.
Sicker patients and labor challenges among post-acute care settings drove the month’s volumes trends, Kaufman Hall wrote.
Month-over-month discharges fell 3% nationwide, according to the report. Average length of stay remained flat compared to August, while operating room minutes dropped by 5%.
Discharges and average length of stay were also down compared to last year whereas operating room minutes were up.
Of note, observation patient days made up a slightly greater portion of total patient days compared to August (1%) and September 2021 (26%), likely owing to difficulties discharging patients to other sites of care.
Total expenses declined by 1% from August and included a 2% dip in total labor expense, a 4% decrease in supply expense and a 6% fall in drug expense, according to the report. Total expenses were up 3% compared to 2021’s September and 8% when comparing 2021 and 2022’s first three quarters.
Kaufman Hall also noted that year-to-date expenses are still up 7% when adjusting for volume.
“Heading into the final quarter of the year, hospitals … have had little reprieve during a very difficult 2022 from a financial perspective,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall and the report’s author, said in a statement. “Hospitals … could climb back into the black by the end of the year, but it is looking less and less likely as months of negative margins continue to pile up.”
Kaufman Hall’s monthly reports are based on a sample of more than 900 nationally representative hospitals.
The latest tally comes just a few weeks after the firm released a survey of 86 hospital and health system leaders that found hospital volumes across most service lines were still struggling due in part to the shift to outpatient care.
That report also touched on staff retention plaguing the industry with 66% of respondents reporting that shortages had forced their organizations to run below full capacity.