Kaufman Hall Reports Hospitals Continuing to See Negative Operating Margins

Consultancy Kaufman Hall’s “April National Hospital Flash Report” indicated that hospitals and healthcare providers suffered a fourth straight month of negative operating margins, driven by the aftermath of the COVID-19 omicron surge. The report provides crucial information on hospital revenues and margins and found that declining patient volumes led to reduced gross operating revenue, taking a serious toll on health systems.

“Labor shortages, high prices for supplies, and cost increases to treat sicker patients over longer stays are ballooning hospital expenses,” said Erik Swanson, Senior Vice President of Data and Analytics for Kaufman Hall. “With a bleak consensus outlook for the U.S. economy, those factors and their effects could be here for a while.”

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Based on a sample of more than 900 hospitals, the report calculated a median operating margin index for hospitals and health systems of -3.09% throughout April, with operating margins down nearly 40% from March and 76% from April 2021. Operating earnings before interest, taxes, depreciation, and amortization (EBITDA) dropped nearly 27% from March to April and 51.5% compared to the same period in 2021, with patient volumes and average lengths of stay declining as well. Surgeries also saw a decrease, with operating room minutes falling almost 9% from March 2022 and 6.2% from April 2021.

As patient volumes decline, expenses are continuing to rise well above pre-pandemic levels, driven by labor shortages and supply chain issues, with total expenses increasing 8.3% year-over-year. Labor costs have had a particular impact on health care profits, with multiple major for-profit and nonprofit hospital systems reporting losses in the midst of the COVID-19 omicron surge in the first quarter of 2022. With unemployment remaining at a pandemic low of 3.6% and the labor market adding 6.5 million jobs in the past year, it is unlikely that providers will see any relief from the torrent of care professionals leaving for new employers or departing the healthcare industry entirely.

With a near-historic level of inflation now making its impact felt, Kaufman Hall does not foresee a turnaround in 2022, expecting falling margins and patient volumes to continue as the world struggles to stamp out the now-waning pandemic. The ongoing Russian invasion of Ukraine and heavy-handed public health measures in China are likely to continue upward pressure on inflation and exacerbate existing supply chain challenges as well.