Hospitals post 11th straight month of negative operating margins

Hospitals around the nation posted the 11th straight month of negative operating margins in November 2022, according to a national survey of financial performance.

Hospitals had a slight increase in operating margins for that month, with lower expenses and increased outpatient revenues driving improved monthly performance. The figures were part of the latest National Hospital Flash Report by analyst Kaufman Hall, which uses data from more than 900 hospitals compiled by Syntellis Performance Solutions.

The November operating margin was -0.2%, better than the -0.3% margin from October last year, and tied for lowest of the year so far with September 2022. While revenues were flat, November expenses were down 1% due to a decrease in volume and shorter stays, so operating margins improved.

“As we’ve seen in other industries, the significant increases in labor costs have made it harder for hospitals to realize positive margins,” Erik Swanson, Kaufman Hall senior vice president of data and analytics, said in a news release. “Hospitals were fortunately relieved of some financial pressure in November amid a continued competition in the health care labor market, potentially due to a shift away from expensive contract labor.”

Paying for staff

Labor costs dropped 2%, “potentially due to hospitals relying less on contract labor, which is often more expensive.” But “like in other industries, significant increases in the cost of labor made it harder for hospitals to see positive margins in 2022,” the report said.

Kaufman Hall analyzes national results with breakouts for the Northeast/Mid-Atlantic, South, Midwest, Great Plains, and West regions. While labor costs were flat or down slightly from October to November, almost every area showed labor costs were up in comparisons of November 2022 vs. November 2021, year-to-date (YTD) 2022 vs. YTD 2021, and YTD 2022 vs. YTD 2019, before the COVID-19 pandemic. Only the West and Midwest showed 2% decreases in year-over-year labor costs.

Outpatients produce revenues

Hospital outpatient clinics and services have the bright spot for hospital revenues in 2022, according to Kaufman Hall.In every region, outpatient revenue showed increases in comparisons of November 2022 vs. November 2021, YTD 2022 vs. YTD 2021, and YTD 2022 vs. YTD 2019.

“The November data, while mildly improved compared to October, solidifies what has been a difficult year for hospitals amidst labor shortages, supply chain issues, and rising interest rates,” Swanson said in the news release. “Hospital leaders should continue to develop their outpatient care capabilities amid ongoing industry uncertainty and transformation.”