Rising Labor Expenses Strain Hospital Finances

CHICAGO January 4, 2022 – U.S. hospitals and health systems continued to feel the pressures of rising expenses and nationwide labor shortages in November 2021, according to the latest issue of Kaufman Hall’s National Hospital Flash Report. Volumes and margins remained depressed in November—before the highly contagious Omicron variant was widespread in the United States—while expenses remained highly elevated relative to pre-pandemic trends.

COVID-19 hospitalizations jumped more than 25% over the course of the month, while actual hospital margins narrowed. The median Kaufman Hall Operating Margin Index was 2.7% in November, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the aid, it was 4.1%.

“Widespread labor shortages are driving up already high labor expenses, posing significant operational challenges for our nation’s hospitals,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”

Compared to pre-pandemic levels in November 2019, the median change in Operating Margin remained depressed, and was down 22.1% in November without CARES act funding. Compared to October 2021, however, the median change in Operating Margin (less CARES) was up 8.1% following two months of month-over-month declines.

Hospital volumes softened in November, as concerns over the latest surge in COVID-19 cases drove month-over-month declines across most volume metrics. Discharges dropped 4.8%, Adjusted Discharges declined 3.9%, and Adjusted Patient Days decreased 2.4% month-over-month. At the same time, Average Length of Stay increased 0.8% month-over-month and was up 8.6% versus November 2019, reflecting an increase in higher acuity cases requiring longer hospital stays, including COVID-19 patients.

Sustained expense increases continued to outpace revenue growth. Per-patient expenses rose across all measures in November as hospitals felt the strain of nationwide labor shortages and global supply chain challenges. Total Expense per Adjusted Discharge increased 24.7% and Non-Labor Expense per Adjusted Discharge rose 20.5% relative to pre-pandemic levels.

Labor expenses in particular continued to climb, even with lower staffing levels. Labor Expense per Adjusted Discharge rose 26.4% compared to pre-pandemic performance, and 2.7% month-over-month despite a 1% decrease in Full-Time Equivalents per Adjusted Occupied Bed. Hospitals in the West had the biggest labor expense increase for the month, with Labor Expense per Adjusted Discharge jumping 28.8% year-over-year.

The month-over-month drop in volumes contributed to a slight decrease in total hospital revenues in November. Compared to October 2021, Gross Operating Revenue (not including CARES) declined 0.6%, Inpatient Revenue dropped 2.6%, and Outpatient Revenue was down 0.7%. Year-to-date and year-over-year revenues remained elevated compared to both 2019 and 2020 levels for a ninth consecutive month.

The National Hospital Flash Report draws on Syntellis Performance Solutions data from more than 900 hospitals.

Kaufman Hall experts are available for comment, please contact Tyler Williams at twilliams@MessagePartnersPR.com.