Although we touch on Kaufman Hall’s National Hospital Flash Reports pretty regularly, the consulting firm recently published a more in-depth update on the current state of hospital finances and it looks like we could be in for a rocky 2023.
The main themes are all laid out below, but the full 13-slide deck is a quick skim if you want to take a closer look at any of the highlights.
One of the most noteworthy findings was that employed labor expenses are projected to increase more than all non-labor costs combined by the end of this year.
- Hospital labor expenses are expected to climb $86B from last year’s combined total, while non-labor expenses are looking at a $49B jump due primarily to inflation causing drug and supply costs to remain 20-25% above pre-pandemic levels.
- Contract labor expenses remain nearly 500% higher than in 2019 as the battle for nursing talent continues to pressure margins despite this year’s slowdown.
Kaufman Haul’s optimistic projections for the rest of the year now indicate that hospital margins will be down 37% from pre-pandemic levels, but their pessimistic models point toward a significantly sharper 133% decline.
- The most pessimistic scenarios include COVID-19 variant surges, sustained inflation and expense growth, sicker patients who have delayed care, aggressive payer negotiations, and increased mix of non-commercial payers.
- Half of hospitals reported a negative operating margin in H1 2022, and 53% are expected to be in the red by the end of the year – a pretty bleak picture considering only a third of hospitals saw negative margins prior to the pandemic.
The Takeaway
Hospitals have been feeling the pain of sluggish volumes and climbing expenses since the early days of the pandemic, but they’re now faced with a total lack of foreseeable federal support to help stabilize their deteriorating financials. Unless the situation starts showing signs of improvement, it’s likely that the service cuts and restructuring moves are just getting started.
