February 8, 2023

Higher expenses due to staff shortages and fewer patients are straining finances in the hospital sector, which is on track to end the year with negative margins, according to data Kaufman Hall published Wednesday.

In October, operating margins declined 2% from the previous month and were down 13% from a year ago, Kaufman Hall detailed in its National Hospital Flash Report, which collects data from more than 900 hospitals.

Costs increased 1% between September and October while net revenue grew 2%. Labor expenses rose 3%. Patient discharges declined 1% and average length of stay increased 3% as a result of staff shortages. Emergency department visits rose 3% and operating room minutes increased 2%, which contributed to a 2% improvement in gross operating revenue. But that gain may not be sustainable because of understaffing.

The report did highlight a few bright spots for hospitals, such as their costs for supplies and drugs decreasing slightly last month.

This year, health systems such as CommonSpirit Health, Kaiser Permanente, Ascension, the Cleveland Clinic and Providence have each experienced losses surpassing $1 billion during recent quarters. High labor and supply costs, investment losses and low reimbursements accounted for these financial struggles to varying degrees among health systems.

Hospitals will likely be dealing with economic challenges exacerbated by the pandemic for at least a few years. Some health systems are pursuing mergers and acquisitions that expand their outpatient offers and bolstering employee retention strategies as ways to strengthen their finances.

Escalating expenses put hospitals in a precarious financial position going into next year, Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a news release.

“With the labor market in the healthcare sector still highly competitive, hospitals are feeling the financial pressure of needing to attract and retain workers with significant increases in salaries,” Swanson said. “Every aspect of patient care—from being admitted, to treatment, to discharge—is affected by the labor shortage and as we head into the virus season and potential new waves of COVID-19 the pressures on hospitals and their staff could mount.”

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