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August 3, 2022

Hospitals report negative margins for the sixth month in a row

Daily Briefing

    Despite an increase in patient volume and revenue, hospitals, health systems, and physician practices continue to struggle financially amid rising costs, according to data from Kaufman Hall's National Hospital Flash Report and Physician Flash Report

    Hospital margins in the first half of 2022

    According to the report, hospitals' median change in operating margins increased 30.8% in June compared with May 2022. However, this was still down 49.3% from June 2021.

    For the first half of 2022, Kaufman Hall reported a median year-to-date (YTD) operating margin index of -0.09% for hospitals, marking the sixth month of cumulative negative actual operating margins.

    Compared with June 2021, hospitals saw their volumes increase for several measures in the first half of 2022, including:

    • Adjusted patient days: 2.3%
    • ED visits: 2.6%
    • Adjusted discharges: 0.1%
    • Average length of stay: 2.8%

    Volume increases resulted in a slight improvement in hospitals' revenue performance for June. In June, Kaufman Hall reported that hospitals' gross operating revenue increased 1.2% from May, 4.1% year-over-year (YOY), and 6.2% YTD.

    While hospitals' total expenses decreased by 1.3% from May to June, they are still up 7.5% from June 2021. According to the report, inflation and labor shortages have contributed to hospitals' total costs increasing by 9.5% YTD.

    "To say that 2022 has challenged healthcare providers is an understatement," said Erik Swanson, SVP of data and analytics with Kaufman Hall. "It's unlikely that hospitals and health systems can undo the damage caused by the COVID-19 waves of earlier this year, especially with material and labor costs at record highs this summer."

    Physician practice margins in the first half of 2022

    Meanwhile, higher patient volumes at physician practices contributed to a 5.6% increase in net patient revenue per provider full-time equivalent (FTE) from Q1 to Q2. However, this metric increased by only 1% YOY—despite a 5% YOY increase in provider productivity and a 10% YOY increase in the physician component of provider productivity.

    While physician practices saw a slight increase in net patient revenues, they were offset by growing operating expenses.

    According to the Kaufman Hall report, the competitive health care labor market contributed to a new high for total direct expense per provider FTE of $619,682 in Q2 2022. That was a 7% increase from the second quarter of 2021 and a 12% increase from the second quarter of 2020.

    "Given the trends in the data, physician practices need to focus on efficiency in the second half of 2022," said Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall. "Amid historically high expenses, shifting some services away from physicians to advanced practice providers like nurse practitioners or physician assistants could help rein in the costs of treating an increased patient load while taking some of the weight off the shoulders of physicians." (Schiavo, HealthLeaders, 8/1; Kaufman Hall, Physician Flash Report, 8/1; Swanson, National Hospital Flash Report, 8/1)

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