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Kaufman Hall Report: In Third Quarter, Hospitals Continued to Face Severe Financial Pressures

Experts at the Chicago-based Kaufman Hall consulting firm are once again confirming what patient care organization leaders have been navigating through this year: hospitals and health systems remain in financial trouble nationwide.

On Wednesday, Nov. 30, the firm released its “National Hospital Flash Report” for November, authored by senior vice president Erik Swanson. As the introduction to the report posted to the firm’s website noted, “Hospitals are nearing the end of the year with negative margins, with expenses, staff shortages, and fewer patient discharges driving poor performance.” Indeed, the introduction noted, “Kaufman Hall’s year-to-date operating margin index for hospitals was -0.5 percent through October. Operating margins dropped from September, down 2 percent from the previous month and down 13 percent from October 2021.”

Kaufman Hall researchers found that “Hospitals’ total expenses increased slightly in October from already elevated levels in September, outpacing revenues. Total expenses increased 1 percent from the previous month, while total labor expenses increased 3 percent. Kaufman Hall experts identify a few bright spots in hospital expenses, with supply and drug expenses down slightly from September 2022.”

Per all that, Swanson said in a statement upon the release of the report, that “Record-high expenses across the economy have not eased up, leaving hospitals in a precarious financial position as we look to the end of the year. 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.”

 The report noted that “Hospitals saw modest increases in emergency department (ED) visits (3%) and operating room minutes (2 percent) over September figures, contributing to a 2-percent increase in gross operating revenue from the previous month. The increase in ED traffic could, however, have a straining effect on the nation’s ED workforce as patients are unable to be admitted to inpatient settings due to staff shortages. In many instances, this has led to patients being boarded in the ED.”

At the same time, the report found, ”Staff shortages across hospitals and post-acute settings have resulted in fewer patient discharges and longer lengths of stay. Adjusted discharges were down 1% from September 2022 and average length of stay increased 3%. The longer stays, however, have not resulted in additional revenue for hospitals.”

“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,” said Swanson. “The October data reinforce what we have known for several months, 2022 has been and will continue to be a very difficult financial year for the nation’s hospitals.”

Key takeaways from the report include the following:

Ø Margins remained negative in October.

October represented another month of negative operating margins for hospitals, with a slight downturn from September. As the year comes to a close, compounding months of poor performance could signal continued difficulties for hospitals.

Ø  Expense pressures drive poor performance.

Hospitals continue to face the significant weight of high expenses outpacing revenues, particularly when it comes to the cost of labor. Additionally, hospitals are turning to external sources for services like IT and human resources support, instead of keeping them in-house at a lower cost. Finally, the high cost of materials due to inflation has not abated.

Ø  Hospitals struggle to discharge patients.

Hospitals struggled to discharge patient in October due to internal labor shortages and shortages in post-acute settings. The struggle to discharge patients led to a slight increase in length of stay. However, longer stays did not translate to additional revenue for hospitals.

Ø  Emergency department visits and operating room minutes increase slightly.

Hospitals experienced slight increases in both categories from September to October, However, the increase in emergency department (ED) visits put further strain on hospitals, as many were unable to admit patients needing inpatient care, due to staffing shortages. Many hospitals were forced to board patients in the ED, leading to increased pressure on ED staff.

The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report come from Syntellis Performance Solutions. The full report can be found here.

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