Hospital Margins in Negative for Second Consecutive Month

The National Hospital Flash Report found minimal improvement from January to February as most hospitals suffered margins decline for the month.

Hospitals continued to feel the adverse effects from the omicron variant in February as operating margins remained in the red for a second consecutive month, according to a new National Hospital Flash Report from Kaufman Hall.

While COVID-19 cases and hospitalizations significantly decreased from the all-time highs of January, the report found that challenges with labor shortages and global supply chain led to high hospital expenses in comparison to prior years.

Related: Omicron Variant Takes Heavy Toll on Hospitals in January, Kaufman Hall Reports

The key data points from the report on February, which is based on data from more than 900 hospitals, include:

• The median Kaufman Hall Operating Margin Index for hospitals was -3.45% in February, up from -4.52% in January "but still below sustainable levels." Despite the improvement in median actual margin index, most hospitals reported margin declines for the month.
   
• The median change in operating margin was down 11.8% from January, while the median change in operating EBITDA margin fell 7.5% month-over-month.
   
• Patient days decreased 13.3% and the average length of stay was 5.3% less month-over-month. Surgery volume experienced a moderate rise as "some patients returned for nonurgent procedures that were delayed during the omicron surge," with operating room minutes increasing 6.5% from January.
   
• Gross operating revenue dropped 7.4% and outpatient revenue decreased 5% from January. Inpatient revenue suffered significant decline, falling 19.3% after a nearly 3% increase in January due to record volume.
   
• Hospital total expense per adjusted discharge was down 4.5%, labor expense per adjusted discharged fell 6.1%, and non-labor expense per adjusted discharged declined 3.6% from January. However, total expense per adjusted discharge rose 10.4% and non-labor expense per adjusted discharge increased 8% compared to February 2021. Lower staffing levels were offset by wage competition, which drove up labor expense per adjusted discharge 15.3% year-over-year.

"2022 is off to a very difficult start for our nation's hospitals and health systems," Erik Swanson, senior vice president of data and analytics with Kaufman Hall and the author of the report, said in a statement. "Margins, revenues, and inpatient volumes declined for most organizations in February, while outpatient care signaled only slow returns. The metrics indicate a challenging recovery from the omicron surge in the coming months."