Hospitals off to a poor financial start in 2022

U.S. hospitals and health systems are off to a poor start in 2022, according to a report from Kaufman Hall.

Hospitals have seen two consecutive months of negative operating margins, with most organizations seeing declining margins, revenue, and inpatient volumes following the omicron surge.

Outpatient care volumes have been slow to recover, despite a steep decline in COVID cases. Similar to past surges, delays in nonurgent care led to decline in outpatient metrics during omicron, while a moderate rise in surgery volume showed some patients returned in February, but overall patient volumes remained low.

The 7-day moving average of new cases dropped 92% from an all-time high of 809,621 at the apex of Omicron on January 15 to 66,195 on February 28.1 The 7-day moving average of new daily admissions dropped 79% from a peak of 21,622 on January 15 to 4,515 on February 28.

Also affecting hospital revenue were receding inpatient volumes at the end of the omicron surge. COVID-related hospitalizations declined, leading to lower inpatient volume and drop in the average length of stay in February as fewer patients required care for severe symptoms.

Average Length of Stay (LOS) dropped 5.3% month-over-month. However, Average LOS rose 3.6% YOY and 12.6% versus the same month in 2020. Adjusted Discharges decreased 10.8% versus February 2020 and 0.6% month-over-month, but were up 0.6% versus February 2021.

There was some good news, as many hospitals saw some relief from rising expenses. Expenses decreased across most metrics from January to February, but nationwide labor shortages and global supply chain issues continue to drive up expenses compared to prior years.

The median Kaufman Hall Operating Margin Index reflecting actual margins for the month was -3.45%, up from -4.52% in January but still well below sustainable levels. Recovery from the omicron surge likely will continue to be slow in the coming months, and hospitals could face additional setbacks if other variants — such as the BA.2— lead to new surges.

Poor volume performance led to month-over-month revenue declines in February. Gross Operating Revenue was down 7.4% and Outpatient Revenue dropped 5% from January levels. Inpatient Revenue had the biggest decrease, down 19.3% following a nearly 3% increase the prior month due to January’s spike in COVID-related hospitalizations. Compared to prior years, Gross Operating Revenue rose 7.8% versus February 2021 and 5.7% versus the same month in 2020. Inpatient Revenue was up just 0.9% compared to February 2021 but down 1.2% from February 2020. Outpatient Revenue increased 9.3% YOY versus 2021 but decreased 2.8% versus February 2020.