Latest financial metrics for hospitals show reasons for optimism but also persistent challenges

• Hospital financial performance partially recovered in March as patient volumes returned to something closer to normal after a downturn during the omicron wave.
• Led by labor costs, expenses remain a major hindrance.
• Issues stemming from rising expenses were seen in the first-quarter reports of for-profit health systems.

Outpatient volumes and revenues drove improved hospital performance in March, as seen in newly released data, but significant headwinds remain as healthcare providers strive to recover from the worst of the COVID-19 pandemic.

Kaufman Hall’s monthly National Hospital Flash Report shows hospitals rebounding in key categories, although a full recovery still seems a ways off.

Hospital operating margins rose by 32.7% from February to March, according to Kaufman Hall’s index, but margins remained negative, at -2.43%, for the third consecutive month. According to an American Hospital Association (AHA) report, more than a third of hospitals are operating with negative margins.

Patient volumes are getting back to normal

Some of the reported metrics, which draw on data from Syntellis Performance Solutions, represent a welcome change from what has been seen this year and during much of the pandemic.

“The results provide some hope for healthcare providers following the devastating surge of the omicron COVID-19 variant last winter,” states a Kaufman Hall news release.

For example, operating room minutes rose 17.3% from February to March, indicating the return of patients who had delayed nonurgent procedures. Emergency department visits increased by 16.8%.

Adjusted patient days increased by 12.5% and adjusted discharges by 18%. The higher volumes contributed to higher revenues, with gross operating revenue increasing by 14% — even as average length of stay fell by 6.2% — and outpatient revenue rising by 16.1%.

“While the road to recovery remains long for many hospitals, these trends indicate some pressures of the pandemic may be lifting,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in the news release.

Expense concerns haven’t been mitigated

Expenses continue to be a big issue for hospitals in the pandemic era.

Adjusted expenses did tick down from February to March. Per adjusted discharge, total expenses fell by 9%, labor expenses by 8.3% and non-labor expenses by 9%. But those metrics all were significantly higher on a year-over-year basis (10.8%, 12.6% and 6.4%).

“Hospitals still face a long road to recovery,” the Kaufman Hall report states, with inflation, supply chain challenges and widespread labor shortages looming as especially big obstacles.

Likewise, the AHA’s report shows significant jumps in key expense categories during the pandemic.

For example, labor expenses were 19.1% higher per patient in 2021 than they were in 2019, and the share of nurse labor expenses spent on contract staff increased from 4.7% to 38.6% by January 2022. There also were massive increases per patient in drug expenses (36.9%) and medical supplies (20.6%).

“With additional [COVID-19] surges potentially on the horizon and case rates rising once again, the massive growth in expenses is unsustainable,” AHA stated in the report.

The association hopes Congress will appropriate additional funding now that the Provider Relief Fund is out of money, with the most recent general distribution allocated to cover financial losses that were incurred through March 2021.

Hospital chains report on their challenges

First-quarter financial metrics reported by leading for-profit health systems illustrate the extent to which labor expenses remain a drag on hospital performance.

For example, HCA Healthcare reported that even as Q1 revenue rose by $968 million year-over-year, the ratio of salaries and benefits to revenue increased from 45.1% to 46.4%. Largely as a result, net income dropped by $150 million.

“In the first quarter, we had a number of positive volume and revenue indicators,” CEO Sam Hazen said in a news release. “Unfortunately, they were offset by higher-than-expected inflationary pressures on labor costs.”

Universal Health Services announced Q1 net income of $153.9 million, a 26% decrease year-over-year.

“Our operating results during the first quarter of 2022 reflect continued uncertainties related to the COVID-19 pandemic as well as cost escalations related to the nationwide shortage of nurses and other clinical staff and support personnel,” UHS stated in a news release.