Last year was the worst financial year for U.S. hospitals and health systems since the start of the COVID-19 pandemic, as growth in expenses outpaced growth in revenues and volumes, according to the latest report on hospital finances from Kaufman Hall.
“The increases were driven in part by a competitive labor market, as well as hospitals needing to rely on more expensive contract labor to meet staffing demands,” the report notes. “Increased lengths of stay due to a decline in discharges also negatively affected hospital margins.”
Hospitals experienced negative operating margins for most of the year, with approximately half of the nation’s hospitals ending the year in the red. According to the report, hospitals’ expense pressures “are unlikely to recede in 2023.”
Key takeaways from the report:
- Hospital margins end year in difficult shape.
- Despite modest margin improvements in November and December, suggesting a positive trendline heading into the new year, 2022 was the worst financial year since the start of the pandemic. Approximately half of U.S. hospitals finished the year with a negative margin as growth in expenses outpaced revenue increases.
- Financial pressures driven by labor expenses.
- Hospitals faced prolonged increases in labor expenses last year. The increases were driven in part by a competitive labor market, as well as hospitals needing to rely on more expensive contract labor to meet staffing demands. Increased lengths of stay due to a decline in discharges also negatively affected hospital margins.
- Outpatient settings see increased volume.
- The front door of the hospital continues to shift away from the emergency department. Hospitals experienced increased outpatient volumes, including in surgical settings.
- Success in 2023 tied to learning lessons of ’22.
- Expense pressures are unlikely to recede in 2023. Hospitals that embrace better workforce management strategies, secure more stable supply lines, and more effectively negotiate with payers are likely to have better financial years in 2023. Hospitals should also leverage their outpatient footprint and improve relationships with post current patient volume trends.
You can read the full report here.