2022 Worst Financial Year for Hospitals and Health Systems Since start of Pandemic

Despite modest improvements for hospital bottom lines—and increased provider productivity towards the end of the year—2022 defined by financial pressures

CHICAGO – January 30th, 2023 – Last year was the worst financial year for hospitals and health systems since the start of the COVID-19 pandemic, according to the latest data from Kaufman Hall. Negative margins persisted for most of the year as the healthcare sector faced rapidly increasing labor expenses, the analysis shows.

The new data show modest margin improvements for hospitals at the end of 2022 and increased provider productivity within physician groups due to increased patient volumes.

Health Sector Struggles Financially in 2022, Despite Modest Improvements in December

The median year-to-date (YTD) operating margin index for hospitals was 0.2% in December, the only month in 2022 where hospitals realized positive YTD margins, according to findings in the latest National Hospital Flash Report. Approximately half of U.S. hospitals finished the year with a negative margin as growth in expenses outpaced revenue increases.

According to the latest Physician Flash Report, the median investment/subsidy per provider full-time equivalent (FTE) fell to $187,801 in the fourth quarter of 2022, down 5% compared to the fourth quarter of 2021.

Patient Volumes Up to End the Year

Hospitals experienced increased patient volumes, particularly in outpatient settings, as patients moved away from emergency department visits and towards care delivery in ambulatory and outpatient surgical settings.

Meanwhile, Q4 data illustrated a shift in where patients seek care, choosing to access care away from inpatient hospital settings. This shift led to increased provider productivity, significantly increasing revenue, as the net patient revenue per provider FTE rose to $397,493, an 8% increase year-over-year.

“The pandemic fueled a fundamental shift in how patients are choosing to access their routine care,” said Matthew Bates, managing director and Physician Enterprise service line lead with Kaufman Hall. “Providers are seeing more patients than ever, particularly in primary care settings, and care is moving away from hospitals. Medical groups should seek to improve individual provider productivity and efficiently integrate advanced practice providers to meet the increase in volume and successfully bend the cost curve.”

Constant High Labor Costs Drive Expenses

A competitive labor market and greater reliance on more expensive contract labor to meet staffing demands drove hospital and provider expenses that their bottom lines could not overcome, despite increased patient volumes. Hospital labor expenses increased by 2% from November to December 2022. Total direct expense per provider FTE increased to $592,430 in the fourth quarter of 2022, a 5% increase compared to Q4 2021.

“As we saw throughout 2022, the labor market was unkind to hospitals and provider groups,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall. “Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends.”

The National Hospital Flash Report draws on data from more than 900 hospitals from Syntellis Performance Solutions. The Physician Flash Report draws on data based on more than 200,000 providers, also from Syntellis.

Kaufman Hall experts are available for comment, contact Tyler Williams (TWilliams@MessagePartnersPR.com, 434-329-0940).

About Kaufman Hall

Kaufman Hall provides management consulting solutions to help society’s foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics, and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; performance improvement; treasury and capital markets management; mergers, acquisitions, partnerships, and joint ventures; and real estate.