Hospital margins decline for second month in a row

October saw a second consecutive month of margin declines in October thanks to continually mounting labor expenses and despite lower levels of serious COVID-19 cases.

Margin declines continue to plague U.S. hospitals and health systems, according to the November issue of Kaufman Hall's National Hospital Flash Report.

October saw a second consecutive month of margin declines in October thanks to continually mounting labor expenses and despite lower levels of serious COVID-19 cases.

Any COVID-19 reprieve may be short-lived however: New cases and hospitalizations have been ticking upward again, and the first U.S. case of the omicron variant was just detected in California.

According to Kaufman Hall, the median change in operating margin was down 12.1% from September to October, and 31.5% compared to pre-pandemic levels in October 2019, not including federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Hospitals in regions that are still dealing with the Delta surge were most affected, with the West, South, and Midwest all experiencing year-over-year margin declines for the month.

Actual hospital margins remained tight. The median Kaufman Hall Operating Margin Index was 3.2% in October, not including CARES. With the aid, it was 4.1%.

Labor expenses continued to rise, driving up overall expenses as hospitals felt the impacts of nationwide labor shortages, and total labor expense increased 2.7% from September to October.

At the same time, staffing levels (as measured by full-time equivalents per adjusted occupied bed) decreased 4.5% year-over-year, suggesting that higher pay and benefits are pushing up labor expenses despite lower staffing levels.

In addition, inpatient volumes showed signs of softening in October, with patient days down 0.5% compared to September while average length of stay decreased 1.5% following three months of increases.

Finally, the report found that operating room minutes rose 6.8% month-over-month, suggesting a return of patients seeking elective procedures.