November's hospital margins up 12% monthly thanks to cooling expenses

Hospital margins shifted upward in November thanks to a dip in expenses yet still remained in the red across the first 11 months of 2022, according to the most recent monthly industry report from Kaufman Hall.

Median operating margins rose 12% over October, when labor woes and discharge difficulties pumped the brakes on months of steady recovery.

Year-to-date (YTD) median hospital margins now sit at -0.2%, slightly improved from October’s -0.3%, according to the report. Despite the minor gain, hospitals’ YTD margins are 44% worse than this time last year and 31% worse than in November 2019, according to the report.

The advisory firm pointed to a decrease in expenses, most notably labor, as the driving force behind the improving numbers.

“As we’ve seen in other industries, the significant increases in labor costs have made it harder for hospitals to realize positive margins,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a release. “Hospitals were fortunately relieved of some financial pressure in November amid a continued competition in the healthcare labor market, potentially due to a shift away from expensive contract labor.”

Net operating revenue grew 1% month over month and is up 3% YTD compared to this time last year. Net patient service revenue per adjusted discharge increased 1% month over month but was down 1% YTD compared to 2021.

Adjusted discharges fell 1% month over month but were up 1% YTD over this time in 2021. Average length of stay also fell 1% month over month while rising 1% YTD, though operating room minutes fell 2% month over month and stayed flat YTD.

Kaufman Hall noted that the dipping volume numbers drove a 1% month-over-month decrease in hospitals' total expenses during November, though they still remain up 7% YTD over November 2021. While supply and drug spending generally remained flat or increased slightly from October, total labor expense fell 2% month over month and now sits at a 9% YTD increase over this time last year, when the omicron surge was just starting to gain steam.

“The average patient length of stay declined slightly—along with several other key volume metrics—leading to relatively flat revenue,” the firm wrote. “However, hospital expenses declined, resulting in improved margins.”

Kaufman Hall’s report also highlighted rising outpatient revenues, “a bright spot in hospitals’ revenue column in 2022.”

Compared to the flat year-over-year performance of YTD inpatient revenue, YTD outpatient revenue was up 8% over November YTD 2021 and 20% over November YTD 2019, potentially highlighting an opportunity for hospitals looking to recover lost ground.

“The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues and rising interest rates,” Swanson said. “Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation.”

Kaufman Hall’s monthly reports are based on a sample of more than 900 nationally representative hospitals, the data from which are collected by Syntellis Performance Solutions.

The firm and other market watchers have painted 2022 to be a historically difficult year for hospital finances due to the combination of workforce shortages, hard-to-predict demand spikes, capacity constraints and an end to 2021’s relief funds. Multiple state hospital organizations have warned of looming closures among rural or less-resourced facilities should the trends continue into the new year.