Change happens; and sometimes it comes at you fast. In 2008, the telephone manufacturing industry was running at full steam. Wired and cordless phones, as well as answering machines, were in high demand. But since that time, employment in the telephone apparatus manufacturing industry has steadily declined by more than 40 percent. The reason? It’s because Americans’ voracious purchasing of cell phones and smart phones since that time has made these other devices obsolete in minds of many. It reminds one of what happened to the buggy whip industry after the invention of the automobile.

That brings us to the hospital industry. While no one is predicting the kind of stark demise of this industry as seen in those discussed above, there are some trends that are causing concern—at least for the short term. There used to be a time in the healthcare world when things were humming along nicely and hospitals could count on a future of consistent growth. That was in the past. Now, the rosy predictions of profitability are becoming a bit scarce in today’s market. Why is that? After all, one would think that, with the aging of the sizeable baby boomer generation, there would be a growing need for hospital beds and services to treat the inevitable illnesses that affect individuals of that age bracket. Yet, there is a current downturn in case volume being experienced by many of America’s hospitals; and that, in turn, is leading to declining revenues.

A Peek at the Problem

A recent survey was conducted by Stifel Financial Corporation of 150 surgeons who specialize in one of three areas: interventional cardiology, general surgery and orthopedics. The purpose of the survey was to get a better gauge on current trends within these specialties. The interventional cardiologists reported that they performed fewer transcatheter aortic valve replacement (TAVR) procedures than in the second quarter of 2022. The survey indicated that 78 percent of interventional cardiologists and 62 percent of general surgeons and orthopedic surgeons saw supply chain disruptions as being contributing factors in the suppression of case volume growth. Most surgeons also pointed to the ongoing staffing shortage as a reason for the downward pressure on case volume growth in the third quarter. Over 40 percent said that staffing will remain problematic until 2024 or later.

In keeping with at least part of the findings of the Stifel survey, new data from KaufmanHall (KH) shows that 66 percent of survey participants reported their facility was running at less than full capacity because of staffing shortages. Summarizing their findings in an October survey entitled “2022 State of Healthcare Performance Improvement: Mounting Pressures Pose New Challenges,” KH researchers stated:

Workforce concerns are top of mind. There simply are not enough candidates available to fill empty positions, with particularly acute problems in nursing. The need to rely on contract labor to help plug staffing gaps has resulted in labor costs that are unsustainable over the long term,

Staffing shortages are impacting performance in other areas. Many of the hospital and health system leaders surveyed in this year’s Kaufman Hall State of Healthcare Performance Improvement report noted an increase in inpatient length of stay; our interviewees attributed this increase largely to staffing shortages at post-acute care facilities. Without adequate staff, these facilities also have had to reduce capacity, resulting in delays in discharging patients from inpatient care.

The KH survey also revealed that 40 percent of respondents said that oncology was the only service line that saw a significant case volume increase over last year, reaching pre-pandemic levels.

Longer Term Outlook

While things may be looking a bit pessimistic at present, that does not mean there are no signs of hope out there for hospital executives. The good news from the Stifel survey, discussed above, is that respondents from all three specialties expect case volumes to gradually rise in the fourth quarter of this year. On a longer-term note, several respondents to the KH survey said that their organizations are planning for at least a three-to-four-year transition from the current state to a more stable labor market.

Many observers noted with interest that HCA—one of the nation’s larger health systems—decided to cancel its previously planned new year “outlook,” which the company typically provides during 3rd quarter earnings calls. On October 24, Nashville Business Journal Senior Writer Joel Stinnett reported that the large hospital operator had decided to forego its estimation of 2023 hospital prospects due to “economic uncertainty.” The company currently plans to provide its 2023 update early in the new year.

Clearly, there is still a great deal of uncertainty concerning what the long term holds for the healthcare industry, in general, and hospitals, in particular. Many are optimistic that the present difficulties will eventually pass and hospitals will be able to get back to business as usual. In future alerts, we will explore possible strategies that hospitals can pursue to stay afloat until the better times arrive.