In this episode, we are joined by Erik Swanson and Matthew Bales of Kaufman Hall, to discuss the results of the their recent National Hospital Flash Report and the Physician Flash Report.Learn how to listen to The Hospital Finance Podcast® on your mobile device.
Highlights of this episode include:
- Performance levels without CARES Act funding
- 2021 vs 2020
- Staffing shortages and labor Expenses trends
- Omicron’s impact
- Physician productivity
- Investments and subsidy levels
Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance podcast. Kaufman Hall recently released their National Hospital Flash Report and Physician Flash Report for January 2022. These comprehensive reports look at the financial performance of hospitals and physician practices in 2021. Today, I’m joined by Erik Swanson and Matthew Bates of Kaufman Hall to discuss the results of these latest reports. Eric and Matthew, welcome to the show.
Matthew Bates: Michael, great to be speaking with you again.
Mike: Very happy to have you on. Erik, let me start with you. Hospitals are still performing well below 2019 levels without CARES Act funding. Tell us about that. What’s going on there?
Erik Swanson: Yeah, certainly. I wish I had better news, but we can add a little context here to some of the challenges that hospitals were facing. So as you mentioned, 2021 was a challenging year for hospitals. And it’s important to note that we have seen some volume recovery since 2020. However, discharges, ED visits, OR minutes, all still remain down from 2019, or rather pre-pandemic levels. So with that, what we’re seeing, though, is also an increase in patient days and therefore the average length of stay. And what this would seem to indicate is that there’s been an increase in the acuity of patients that have been arriving to the hospital. And with this rising acuity has come rising expenses. And so it’s this expense story that has really challenged the performance of hospitals in 2021, and in particular, relative to those pre-pandemic levels. And it’s worth noting for that rising acuity, as well, that’s not only from COVID patients, but it’s also risen due to patients who have delayed care, perhaps in 2020 leading into 2021, and are coming in a bit more sick. But on a positive note, it may have also risen due to some patients seeking care outside of the hospital, so those who were less acute now accessing care through other channels using different front doors at the hospital. And finally, as I should mention, relative to pre-pandemic levels, it’s important to note that hospital margins are historically very thin to begin with. And so any of these decreases primarily in the last year, driven by those increases in expense, really challenges hospitals. And it’s a very worrisome trend as we monitor their health and performance.
Mike: So Erik, perhaps some good news. Hospitals did perform better in 2021 than they did in 2020. What did you see there?
Erik: Yeah, that’s correct. So 2021 did see better performance than 2020. And when viewed as a whole, the real drivers to this is an increase in volume over 2020, so as I just mentioned, not quite at those baseline pre-pandemic levels, which helped support the hospitals. So across the board, with those increased volumes over the prior year, we did see an increase in revenue across the board. We saw some shifts towards a bit more of a normal inpatient/outpatient mix, although still not quite where they were at historically. And so we’ve seen some improvement. I think it’s also worth noting, too, that the ability of hospitals and governments to respond to these surges in COVID patients has certainly helped the performance of hospitals, and they themselves have learned how to handle it. And so if we think back into the prior year in 2020, with the beginning of those stay-at-home orders in March and April, those led to historically low margins in the range of negative 35% or so. And with 2021, hospitals were never quite challenged to that degree, at least on a broad basis. And so certainly with the ability to care for those patients better, we’ve seen improvements overall. And with some returning of volume, it has also helped hospitals perform a bit more strongly. I should also mention, as well, that in 2021, there was some additional remaining CARES support funding that also came into help hospital performance. But even without the CARES funding, they’re still performing slightly below pre-pandemic levels, however, much better than they performed in the prior year.
Mike: And Erik, everyone who’s involved in the hospital space is well aware of the staffing shortages that we’re currently going through. And indeed, labor expenses continue to drive the acceleration of overall expenses. How did that pan out in 2021?
Erik: Yeah, this is an incredibly important topic. And as you mentioned, hospitals are really being stressed by some of these both longer-term and more immediate and recent trends that we’ve seen. So relative to the labor shortage, one of the metrics that we track in our report is FTEs per AOB, which helps measure the amount of hours being worked per average occupied bed, if you will. And what’s notable here is that that was down nearly 4% relative to pre-pandemic levels. So the hours being worked are less. However, labor expense was up nearly 13% for that same timeframe. So not only is there a shortage of labor, but certainly then the cost of labor has risen pretty dramatically. And that cost of labor, it’s always important to break down what’s driving it. But one of the main drivers of that cost of labor here has been the usage or requirement to use contract labor to supplement normal employed staff. And in many cases, we saw the utilization of that contract labor in some cases triple from baseline level. And cost for bringing in contract labor, traveler nurses, as it’s often referred to, as well, can cost double over an employed level to that same level. And so this has really, really challenged hospitals. And I should just mention, too, that even beyond labor– so labor is the main story here. But even beyond labor, there’s been just the impacts of the general inflation and supply shortages that have persisted that have, again, continued to press those expense categories above the pre-pandemic levels. So as we’re speaking with clients, it’s really focused here on how to more effectively deploy and manage those labor costs. But certainly some of the non-labor costs have risen as well.
Mike: And hospital’s began feeling Omicron’s impact in December. How did that affect hospitals and where are we now?
Erik: Yeah, it’s a wonderful question. So as I mentioned earlier, this is an area in which I wish I had better news. And unfortunately, as we saw the impact of Omicron, in our data, the vast majority of the impact of Omicron in hospitals actually affected them in January of this year. So in December of last year, we saw some impact, some softening of volume, some financial stress. However, here in January, hospitals performed very poorly. And unfortunately, this is due to large decreases in volume, month-over-month, as those surges occurred. And then as patients delayed, postponed their care, didn’t come into the hospital. So we saw a major decrease in those month-over-month volumes. And acuity continued to rise month-over-month by very large amounts. So unfortunately, January was a month with a lot sicker patients, patients that require more expensive care, and then those patients who maybe needed care who were less sick actually delaying or postponing that care. So unfortunately here, the year is not off to a great start.
Further, I should mention that some of these depressed volumes that I’ve been referring to, ED visits in particular or OR minutes, for hospitals, those have remained persistently down, and we’re not seeing any major breaks in those trends. So we certainly hope that February is better, a better month for hospitals as some of these volumes return and perhaps some outpatient revenues and visits and types of services that continue to increase. But the new year is off to a challenging start for hospitals and especially inpatient.
Mike: And Matthew, let’s turn the tables a little bit and talk about physician practices. Overall, physician enterprise productivity is above pre-pandemic levels. What has led to that trend?
Matthew: Yeah, that’s right. Very different than our hospitals, what we’re seeing on the physician front is we’ve seen volume not only come back, but almost come roaring back. So a lot of those folks who’ve been putting visits off, putting off procedures, putting off seeing the doctor during COVID, they’ve reached a point where– it appears that they’ve reached that point of comfort where they’re ready to go see the doctor. And not only are they coming back, but they’re coming back– we’re seeing higher severity patients as they come back. So those things that people put off for a year or two are now– not only do they need attention, but maybe they need more work than they might have needed two years ago. And so physicians overall in general have been very, very productive in 2021.
Mike: And we’ve also seen investment and subsidy levels per physician rising nationally. What is driving this trend, and does it vary at all in different geographies?
Matthew: Yeah. So this investment per provider or subsidy per provider, depending on how you want to phrase it, is in the employed side of healthcare, where physicians work for hospitals and health systems, we generally see where the expenses for that physician are greater than the revenue they generate, right? And that generates this investment or subsidy. And so while physicians are more productive than they were pre-COVID and we see their revenue per physician is up, the expense per physician is up more. So really what’s driving this increased investment or subsidy level is the expenses rising. And so that leads to the question, what’s driving that expense? And certainly labor is a part of that expense increase. So are supply costs. So are just costs like heating the buildings. Inflation is really starting to be very prevalent. And we see that in a lot of the expense numbers for the practices. It’s also important to understand that there is variable compensation linked to a lot of physicians. So the more they work, the more they’re able to generate billing, the more they tend to make. And so the labor expense for physicians goes up as they’re more productive as well.
Mike: And the impact of COVID-19 on Q4 2021 physician enterprise performance was negligible, and this seems to be in contrast to hospitals that were affected by changing inpatient volumes. Can you tell us more about that?
Matthew: Yeah. And while there are certainly some geographic hotspots where we do see some impacts from COVID, on a national level and in aggregate across the country, we see really no impact of Omicron in the Q4 data. I think this is reflected more generally in society, right? We see people are– they recognize COVID is still present. Most people are starting to figure out how to move on in life, right? So they’re returning to the restaurant. They’re returning to the movie theater. And they’re also returning to the physician’s office. So while they may still be hesitant to go to the hospital and/or the hospital may need to be reserving beds for potential COVID surges, the physician’s office, like a lot of society, people are returning to it. I mean, that’s really the story. Now we’ll continue to look at Q1 to see if we see any residual. But so far, we really don’t see any evidence that Omicron has had a significant impact on physician productivity or activity over the last several months.
Mike: Interesting, but it makes sense in some ways. Matthew, similar to hospitals, labor expenses and shortages are posing significant operational challenges for physician practices. What are you seeing there?
Matthew: Yeah, I think this is a pretty significant story. My colleague just talked about nurses in the hospital. And in the physician practice, the biggest impact we’re seeing is actually in the administrative support staff. So that front desk receptionist that we used to hire at 13, 14, 15 bucks an hour is now getting enticed away to go work at Target or Walmart, potentially, at 20 bucks an hour. And so the labor costs in the medical practices have been significantly going up. We don’t tend to see as much use of travelers or temps in the physician practice, but we have seen a huge increase in labor. One of the groups that we’re working with right now, I mean, they just did a $3 across the board raise for all of their front desk staff in those practices. So labor expense, without a doubt, is the single biggest driver of the increase in expense. The other thing I think it’s important to note is that as physicians are more productive, as they see more patients, we need more staff to support them, right? So if I’m seeing 20 people today instead of 10, that’s more of workload on the front desk. That’s more workload on the back of the house where the medical assistants and others support that physician. So we’re seeing both an increase in the labor cost per unit as well as an increase in the need for labor as well.
Mike: Well, there’s certainly a lot of things going on in the healthcare space right now, affected not only by COVID, by the general economic situation, too. So I’m looking forward to having some subsequent conversations with both of you as things begin to unfold in the rest of 2022. If someone wanted to get copies of these reports, where can they go?
Matthew: Yeah. And we’ve certainly enjoyed talking with you as well. If folks are interested in looking at these reports, they can go to kaufmanhall.com. They’ll be able to find the National Hospital Flash Report and the Physician Flash Report. The Hospital Flash Report comes out every month. The Physician Flash Report we release quarterly. You can find the current copies on the website as well as sign up for a mail list to get a free copy every time we release an update of either or both reports.
Mike: Erik Swanson and Matthew Bates, thank you so much for joining us today on the Hospital Finance Podcast.
Matthew: It’s been a pleasure. Thank you.
Mike: Thank you.
[music] This concludes today’s episode of the Hospital Finance Podcast. For show notes and additional resources to help you protect and enhance revenue at your hospital, visit besler.com/podcasts. The Hospital Finance Podcast is a production of BESLER, SMART ABOUT REVENUE, TENACIOUS ABOUT RESULTS.
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