January 2023 a mixed bag as new year starts for hospitals

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Operating margins better than a year ago, but financial challenges remain and health care locations are shifting.

Financial pressure on hospitals could be the “new normal” for 2023 as economic effects linger from the COVID-19 pandemic.

Last year was the worst financial year for hospitals since the start of the COVID-19 pandemic. The beginning of 2023 brought more of the same, according to the latest National Hospital Flash Report. Consultant Kaufman Hall publishes the report based on data from more than 900 hospitals from Syntellis Performance Solutions.

A key takeaway was that this year might represent a new normal for hospital operations, and COVID-19 cannot be discounted as a factor that will affect health care, according to Kaufman Hall.

“Hospitals must continue to explore how to treat lower-acuity patients in novel settings as patient volumes continue to shift to outpatient locations,” the report said. “Furthermore, with future COVID surges likely and difficult financial months ahead, managing cash effectively will be critical to weathering the storm.”

Operational cash flow

January 2023 did not repeat a COVID-19 variant surge of January 2022, which was the start of the worst financial year since the pandemic spread across the United States and the world.

The median year-to-date (YTD) operating margin index for hospitals was -1% in January 2023, better than -3.7% in January 2022. Comparing previous years, the 2023 YTD operating margin index was still lower than that of 2021 at -0.1%, and 2020 at 3.1%.

Month to month, January 2023 hospital operating marginsof -1% were down slightly from -0.7% in December 2022. But -1% has been in roughly the same range since June 2022, and the months from June 2022 to now have posted a “trend of persistent negative margins,” according to Kaufman Hall.

It is normal for hospitals to make purchases for the year each January, so that is a factor that causes a dip in performance, according to Kaufman Hall.

“While we have seen a stabilization in operating margins over the past several months, the trendline continues to show that hospitals will be in a tough spot financially for the foreseeable future,” Erik Swanson, Kaufman Hall senior vice president of data and analytics, said in a news release. “With future COVID surges possible and challenging financial months ahead for hospitals, managing cash on hand will be critical to weathering the storm.”

Challenges right now

But hospitals faced challenges last month.
Labor expenses are up 3% month-over-month.
Patient volumes, emergency department visits, discharges, and total revenues were down.
Net operating revenue dropped 3% month-to-month as total expenses rose by 1%.
Drug expenses are up 12% compared to YTD 2020.

“The increase in drug expenses tied with lower patient volume and longer emergency department stay time indicates that hospitals are serving sicker patients in inpatient settings since the start of the pandemic,” according to Kaufman Hall.

Nationally, hospitals also are reporting shifts in locations where patient access services.

“The trends in increased drug spending and decreased patient volume are indicators of a new landscape in how patients are utilizing hospital services in their care experience,” Swanson said. “Hospitals continue to see outpatient sites driving increased revenue. Hospitals must continue to explore how to treat lower-acuity patients in novel settings as patient volumes shift to outpatient locations.”