Rising labor expenses strain hospital finances

Jan. 6, 2022

U.S. hospitals and health systems continued to feel the pressures of rising expenses and nationwide labor shortages in November 2021, according to the latest issue of Kaufman Hall’s National Hospital Flash Report as described in a news release.

COVID-19 hospitalizations jumped more than 25% over the course of the month, while actual hospital margins narrowed. The median Kaufman Hall Operating Margin Index was 2.7% in November, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the aid, it was 4.1%.

“Widespread labor shortages are driving up already high labor expenses, posing significant operational challenges for our nation’s hospitals,” said Erik Swanson, Senior Vice President of Data and Analytics with Kaufman Hall. “Hospitals are grappling with higher labor costs despite lower staffing levels, due to intense competition for qualified healthcare workers. In addition, the highly contagious Omicron variant could put more pressure on hospitals in months to come.”

Compared to pre-pandemic levels in November 2019, the median change in operating margin remained depressed, and was down 22.1% in November without CARES act funding. Compared to October 2021, however, the median change in operating margin (less CARES) was up 8.1% following two months of month-over-month declines.

Sustained expense increases continued to outpace revenue growth. Per-patient expenses rose across all measures in November as hospitals felt the strain of nationwide labor shortages and global supply chain challenges. Total expense per adjusted discharge increased 24.7% and non-labor expense per adjusted discharge rose 20.5% relative to pre-pandemic levels.

Labor expenses, in particular, continued to climb, even with lower staffing levels. Labor expense per adjusted discharge rose 26.4% compared to pre-pandemic performance, and 2.7% month-over-month despite a 1% decrease in full-time equivalents per adjusted occupied bed. Hospitals in the West had the biggest labor expense increase for the month, with labor expense per adjusted discharge jumping 28.8% year-over-year.

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