A recent analysis from Kaufman Hall shows hospitals and health systems saw significant decreases in patient volumes and revenue in April.
Hospitals and health systems are still struggling to rebound from the winter omicron surge as they experienced significant decreases in patient volumes and revenue in April, with expenses barely easing for the month, according to the latest National Hospital Flash Report from Kaufman Hall.
One of the biggest factors at play in this downturn is the patients who have been delaying care amid various COVID-19 surges and concerns about the overall seriousness of their illnesses keeping them from seeking care. However, there are solutions available for CFOs to help combat the financial challenges associated with unstable patient volumes.
Despite a slight rebound in both revenue and volumes in March, median operating margins were in the red in April. The median change in operating margin was down 38.1% from March to April 2022, and down 76% from April 2021. Additionally, patient volumes and days spent in the hospital were down by 5.7% in April, compared to March. Adjusted patient days dropped 6.5% from March to April but were up 1.8% compared to April 2021, according to the Kaufman Hall data. Adjusted discharges decreased 3.3% from March and decreased 0.3% compared to April 2021. The drop in patient volumes led to a dip in revenue for the month.
"The main driver in the revenue decline, at least in April, was a pulling back of volumes," says Erik Swanson, senior vice president of data and analytics at Kaufman Hall. "There are a few factors that might be the cause of this, and, in some ways, as we look at what happened in March as well, again, a lot has been driven there by volume. One thing to know here is that once we see these general waves or surges of hospitalizations primarily attributable to these COVID-19 cases, as those waves begin to rise, you tend to see a bit of a pullback on volumes."
What's Driving Pullbacks?
Those pullbacks are due in large part to a behavioral component among patients, he says. Patients might have concerns about the rise in COVID cases and will ultimately choose to postpone care. Another behavioral factor he suggests is contributing to the decline in volumes is that patients may feel as though they are not sick enough to need to visit the hospital.
"The other thing to note though is that as we look back, the first few months of this year were decimated by the impact of the omicron wave, but as the omicron wave subsided, we had a bit of a rebound in those volumes, and that's what you saw in March," Swanson says. "However, it wasn't a rebound to the full historical volumes, and that is again because of that wave. But then we saw that pullback and so what we see a lot of in this data and when it seems to reflect is primarily driven by these volume ebbs and flows."
As a result of these fluctuations in volume, hospitals and health systems also felt more pressure when it came to their overall expenses in April. Gross operating, inpatient, and outpatient revenues all dropped approximately 7% from March levels; however, all are up year-to-date compared with the same period in 2021—with gains of 6.6%, 5.3%, and 8.5%, respectively, according to the Kaufman Hall data.
Expenses dropped 4.3% from March but remain high compared to 2020 and well above pre-pandemic levels. Labor shortages and supply chain issues also contributed to the expense levels. The report shows that expenses grew 8.3% since April 2021 and 9.6% year-to-date compared with the same period in 2021.
Managing expenses has always been a challenge for hospitals, one that the pandemic has only exacerbated as more patients required unique methods of care.
"Sicker patients come with higher resource utilization, thus driving much of the expense increases as well," Swanson says. "So, not only are there some larger macro-economic factors at play on the expense side, but as the sicker patients come in, they often require more expensive drugs and supplies, more advanced care, and tend to be a bit more expensive."
Strategies to Ease the Expense Burden
Other factors negatively impacting hospital expenses include the labor shortage and supply chain issues. Fluctuations in revenue aren't something that organizations can manually manage, but with careful management of their expenses, they can ease their financial burden.
"The revenue side is a bit more challenging for organizations to control, Swanson says. "Many are looking at their internal revenue cycle, understanding where there can be improvements in their own process, improving just the performance of the revenue cycle that improves the collections rates. Many are also trying to renegotiate with payers and negotiate perhaps as aggressively as possible to get the best rates. But I think where you see much of the levers that organizations can pull is on the expense side and there are quite a few strategies at which they are taking on the expense side."
One such lever relates to the current nursing shortage, which has forced many hospitals and healthcare organizations to become dependent on contract labor and traveling nurses, which can come with exponential financial burdens. One strategy Swanson says larger hospital systems are utilizing is the internal staffing agencies that can evaluate where the greatest need for labor is across the system and send nurses and other staff already on their payroll to help in those locations.
"Finally, because a lot of these challenges are due to these ebbs and flows in volumes, many organizations are also looking to see how they can embrace more data-driven predictive type models to look at volumes and think about how they can optimize their workforce to better handle these ebbs and flows of volume," Swanson says. "This very often includes thinking about the appropriate size of float pools, the number of times that you need to pay overtime versus hiring new individuals, so many organizations are taking those approaches to bend the cost curve. There are quite a few levers that organizations are pulling to bend this cost curve down to ultimately improve their margins overall."
Amanda Schiavo is the Finance Editor for HealthLeaders.
Hospital revenues declined in April.
Patients are still postponing care, resulting in increasing ebbs and flows in volume.
While hospitals can't manually control fluctuations in revenue, solutions do exist to ease heavy expenses and improve margins.