Healthcare News

Operating margins up but still in the red as expenses soar

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Hospital operating margins were up slightly from May to June, but were still negative overall due to still-soaring expenses, according to the latest Flash Report from Kaufman Hall.

Margins were still significantly lower than pre-pandemic levels, and even when compared to May 2021. Outpatient volumes were up from the previous month, and expenses were generally down from May, but remain extremely elevated from pre-pandemic levels.

The median Kaufman Hall Year-To-Date Operating Margin Index reflecting actual margins was -0.09% through June. The median change in operating margin was up 30.8% from last month but down 49.3% from June 2021. The median change in Operating EBITDA Margin was up 23.5% month-over-month, but down 35% from June 2021.


Outpatient volumes rose in June, with operating room minutes up 2.4% from last month but down 4.8% year-over-year (YOY). Length of stay dropped 2.1% from May but was up 2.8% compared to June 2021. 

Patient days dropped 2.6% from May to June but were up 0.5% from June 2021 levels. Adjusted discharges grew 1.8% month-over-month and were up 0.1% compared to June 2021, while emergency department visits dropped 2.6% from May to June but were still up by 2.6% YOY.

Volume increases led to slightly improved revenue performance in June. Gross operating revenue was up 1.2% from May and 4.1% YOY and was up 6.2% year-to-date (YTD). Similarly, outpatient revenue ticked up 2.6% from May levels, 4.7% YOY and was up 7.8% YTD. Inpatient revenue dropped 0.9% from the previous month but is up 2.2% from June 2021 and was up 4.6% YTD.

Total expenses dropped slightly in June, down 1.3% from May but was still up 7.5% from June 2021. Inflation and labor shortages contributed to total costs climbing 9.5% YTD.

Labor expense per adjusted discharge dropped by 6.7% from May but was up 13.4% YTD, while full-time employees per adjusted occupied bed was down 4.8% from May, indicating increased efficiency in the past month. 

Total expense per adjusted discharge dipped 3.6% from May, and labor expense per adjusted discharge dropped 6.7% from last month.


Labor challenges spurred Moody Investors Service to adopt a negative credit outlook for the healthcare sector, with a December 2021 report showing the main factors are nursing shortages and increased labor costs, which are projected to decrease operating cash flow between 2% and 9%, amid comparatively modest revenue gains.

The shortages, while mostly reducing the availability of nurses and other skilled staff such as lab technicians, will also affect less skilled and entry-level positions. Other factors pushing expenses higher are supply chain disruptions, increased drug costs, higher inflation and increased investment in cybersecurity.

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