Hospitals struggle with decreasing revenue and increasing expenses

Decreasing outpatient revenue and operating room time combined with increases in lengths of stay from June to July have hurt hospital and health system financials, according to the latest National Hospital Flash Report from Kaufman Hall.

According to experts at Kaufman Hall, U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the COVID-19 pandemic, with 2022 shaping up to be the worst year financially for the sector since its outset. They now face poor financial performance without support from CARES Act or stimulus funding to offset the losses.

Outpatient volumes decreased in July, as patients likely sought care in ambulatory settings. Additionally, operating room minutes dropped 10.3% from June 2022. The average length of stay rose 2% from June 2022 and 3.4% from July 2021, a sign that hospitals are treating sicker patients. Patient days rose 2.8% from June to July but were down 2.6% compared to July 2021. Emergency department visits increased 2.6% from June to July.

“July was a disappointing month for hospitals and put 2022 on pace to be the worst financial year hospitals have experienced in a long time,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, in a statement. “Over the past few years, hospitals and health systems have been able to offset some financial hardship with federal support, but those funding sources have dried up, and hospitals' bottom lines remain in the red.”

The median Kaufman Hall year-to-date operating margin index was -0.98%, for a seventh straight month of negative actual operating margins. The median percent change in operating margin in July was -63.9% from June 2022 and -73.6% from July 2021.

According to the report, volume decreases led to declining revenue performance in July. Gross operating revenue was down 3.6% from June. Outpatient revenue dropped 4.8% from June. Similarly, inpatient revenue dropped 0.7% from June and 1.5% from July 2021.

Even though hospitals saw expenses slightly decline – down 0.4% from June, but up 7.6% from July 2021 -- it was not enough to offset declining revenue, according to Kaufman Hall.

“2022 has been, and will likely continue to be, a challenging year for hospitals and health systems, but it would not be prudent to focus on short-term solutions at the expense of long-term planning,” said Swanson. “Hospitals and health systems must think strategically and make investments to strengthen performance toward long-term institutional goals despite the day-to-day financial challenges they experience.”

The National Hospital Flash Report draws on data from more than 900 hospitals.