Hospital margins increased in November, but labor expenses remained a drag on finances

Volumes dropped month-over-month as people remained wary about visiting hospitals amid the pandemic.

A skewed labor market continued to affect hospital finances in November, according to the latest set of data from Kaufman Hall.

Operating margins did improve relative to October, increasing by 8.1% after two months of declines. But margins were 22.1% lower than in November 2019 when discounting federal assistance received via the CARES Act.

Much of the financial pressure stemmed from labor expenses, which continued to climb despite staffing reductions. Per adjusted discharge, labor expense was 2.7% higher than in October despite a 1% drop in FTEs per adjusted occupied bed. Compared with November 2019, labor expense per adjusted discharge was 26.4% higher.

Other issues, including supply chain disruptions, also have posed expense challenges. Per adjusted discharge, total expenses were up by 24.7% and non-labor expenses by 20.5% in November compared with pre-pandemic levels.

“Widespread labor shortages are driving up already-high labor expenses, posing significant operational challenges for our nation’s hospitals,” Erik Swanson, senior vice president for data and analytics with Kaufman Hall, said in a news release.

“Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious omicron variant could put more pressure on hospitals in months to come.”

The November metrics don’t reflect the ongoing surge stemming from omicron, which first was reported in the U.S. on Dec. 1.

Patients remain reluctant to seek hospital care

Hospital volume trends for November indicated the persistent impact of the COVID-19 pandemic on people’s willingness to visit the hospital. Kaufman Hall reported decreases relative to October in discharges (4.8%), adjusted discharges (3.9%) and adjusted patient days (2.4%).

Hospital visits increased in acuity, with average length of stay increasing by 0.8% from October and 8.6% compared with November 2019.

The volume drop-off contributed to month-over-month decreases of 0.6% in gross operating revenue (when excluding CARES Act funding), 2.6% in inpatient revenue and 0.7% in outpatient revenue. But revenues remained higher than in 2019 and 2020 due to the acuity trend.