February 2, 2022

In follow-up to our article of last week, we thought it might be helpful to share a summary of a report on the most recent findings relative to hospital finances that was just published by financial consulting firm Kaufman Hall (KH).  The 31-page report makes it clear that, while hospitals fared better in 2021 than 2020—due primarily to the changing pandemic landscape and the government’s ongoing response—2022 will present new challenges to hospitals’ bottom lines.

According to the report, Hospitals nationwide ended 2021 with rising volumes and ballooning expenses.  Many organizations ended the year in a stronger position due to the ability of hospital decision-makers to better navigate the pandemic’s uncertainties.  Nevertheless, overall hospital performance remains below pre-pandemic levels relative to most metrics. 

Margins

Actual hospital margins remained thin in 2021, but higher versus 2020.  The median KH Operating Margin Index for the year was 2.5 percent versus -0.9 percent for 2020, not including federal CARES funding.  With the federal infusion of aid, it was 4.0 percent in 2021 compared to 2.8 percent in 2020.  Hospital margins increased in December, due largely to increased volumes.  The median change in Operating Margin rose 38 percent from November to December, not including CARES.  With the aid, it increased 49.5 percent.  Compared to before the pandemic in December 2019, however, the median change in Operating Margin was down 14.7 percent without CARES.  Throughout the year, the median change in Operating Margin (without CARES) for all of 2021 was up 44.8 percent compared to 2020 but down 3.8 percent versus 2019.

The median change in Operating EBITDA Margin, according to the report, rose 29.6 percent month-overmonth and performed 28.4 percent above 2020 but 6.1 percent below 2019 levels, not including CARES. With the funding, the median change in Operating EBITDA Margin increased 34 percent from November, was up 9.4 percent from 2020, and up 2.4 percent from 2019.

Volumes

The HK report asserted that the latest COVID-19 surge contributed to increased volumes across most metrics in December.  Compared to November, Adjusted Discharges rose 5.5 percent, and Adjusted Patient Days increased 3.9 percent. Emergency Department (ED) Visits also jumped 7.3 percent.  Compared to the first year of the pandemic, 2021 revealed an increase in severely ill patients requiring longer hospital stays.  Throughout 2021, Adjusted Discharges were up 6.9 percent, Adjusted Patient Days were up 11.8 percent, and Average Lengths of Stay were up 3.5 percent versus 2020. Other volume metrics also saw increases, with Operating Room Minutes up 8.3 percent, and ED Visits up 10.9 percent from the previous year.

At the same time, key volume metrics remained below pre-pandemic performance.  Adjusted Discharges were down 5.6 percent in 2021 versus 2019, while ED Visits were down 8 percent and Operating Room Minutes were down 3 percent.

Revenue

Hospital revenues remained elevated for a 10th consecutive month both year-to-date and year-over-year.  Gross Operating Revenue (not including CARES) rose across all measures.  It was up 4.4 percent versus November, 14.7 percent for all of 2021 compared to 2020, and 12.1 percent for the year versus 2019.

Inpatient Revenue rose 6.2 percent month-over-month, was up 11.5 percent for 2021 as compared to 2020, and up 9.9 percent compared to before the pandemic in 2019.  Outpatient Revenue also increased, rising 2.9 percent from November to December and performing 18.5 percent above 2020 and 11.1 percent above 2019.

The Inpatient/Outpatient (IP/OP) Adjustment Factor was the only revenue metric to see a slight one percent decrease month-over-month, possibly due to patients and providers delaying outpatient procedures in light of the Omicron surge.

Expenses

Hospitals nationwide continued to struggle with escalating expenses exacerbated by widespread labor shortages and supply chain challenges.  Total Expense per Adjusted Discharge decreased 1.8 percent from November to December but was up 3.5 percent for the year versus 2020.

Labor expense increases were a major contributor, as tight competition for qualified healthcare workers pushed labor costs up despite lower staffing levels.  Labor Expense per Adjusted Discharge was down 2.9 percent month-over-month but was up 4.6 percent in 2021 versus 2020.  Meanwhile, Full-Time Equivalents (FTEs) per Adjusted Occupied Bed (AOB) decreased 0.3 percent month-over-month and were down 8.9 percent for the year versus 2020.  Non-Labor Expense per Adjusted Discharge rose 0.7 percent month-over-month and was up 2.1 percent for 2021 versus 2020.

The increases were most dramatic compared to pre-pandemic levels. For 2021 versus 2019:

• Total Expense per Adjusted Discharge was up 20.1 percent
• Labor Expense per Adjusted Discharge was up 19.1 percent
• Non-Labor Expense per Adjusted Discharge was up 19.9 percent

Non-Operating

Inflation hit a nearly 40-year high in December as the Consumer Price Index increased 0.5 percent to 7.0 percent year-over-year—the fastest pace since June 1982. Jobless claims averaged nearly 199,000 per week in December, down significantly from an average of 849,000 in January 2021.  Fed Chairman Jerome Powell indicated a normalization in monetary policy with asset purchases ending in March and rate hikes planned over the course of 2022 to combat inflation. 

Conclusion

In summation, the KH report would seem to indicate that we enter the second month of 2022 in better financial standing than during the worst months of the pandemic but still shy of pre-pandemic levels.  The real concern for 2022 is the double whammy of intensifying staff shortages and higher overall costs.  Indeed, as to the staffing issue, an article this week in Becker’s Hospital Review found that 11 percent of hospitals in the U.S. are currently facing “severe shortages” in staff, and 21 percent anticipate shortages in the weeks ahead.  Hospitals will need to tread carefully through the minefield of difficulties that 2022 may have in store.

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