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Report: ‘Alarming’ Increases in Expenses Challenge Nation’s Hospitals

November 03, 2021

The nation’s hospitals are facing a volatile recovery from the pandemic, as escalating labor and supply expenses contribute to narrower overall margins.

Released this week, the latest Kaufman Hall National Hospital Flash Report provides an overview of the ways the pandemic has impacted U.S. hospitals, featuring data from more than 900 facilities across the country.

Hospitals are seeing “alarming and sustained increases in hospital expenses” due to multiple factors, Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in a statement.

“Growth in labor expenses are outpacing increases in hours worked, suggesting hospitals are paying more due to nationwide labor shortages,” he said. “Rising supply and drug expenses also point to worldwide supply chain issues.”

Among the key takeaways from the report:

  • Hospitals struggled during September:  From August to September, the median change in operating margin declined 18.2 percent, not including federal COVID-19 relief funding. The median change in operating margin decreased 1.7 percent year-over-year compared to pre-pandemic levels
  • Revenues:  Gross operating revenues without federal COVID-19 funding decreased month-over-month during September (1.4%), but are up year-to-date from 2019 and 2020
  • Expenses:  Total expenses are up about 11 percent year-over-year. Labor, supply, and drug expenses are up 14.6 percent, 15.4 percent, and 43.9 percent year-over-year, respectively
  • Longer hospital stays:  Hospitals are continuing to see sicker patients. Year-over-year, average length of stay and patient days increased 4.8 percent and 11.4 percent, respectively

“While revenue increased from prior year performance, volumes dropped relative to pre-pandemic levels and expenses increased dramatically, leading to declines in margins,” the report noted.

The report also indicated that inpatient revenue growth has outpaced outpatient revenues, potentially “reflecting some patients’ continued reluctance to seek care amid the ongoing pandemic.” The surge of Delta cases also has affected margins in the West, South, and Northeast/Mid-Atlantic regions.

The Kaufman Hall report, as well as a physician group snapshot, are available online.