In this episode, we welcome back Erik Swanson of Kaufman Hall to discuss the results of the latest National Hospital Flash Report and how it shows that hospitals across the country are still struggling financially.
To read Kaufman Hall’s National Hospital Flash Reports go HERE.
Highlights of this episode include:
- Top takeaways from the May report
- How hospital margins fared
- How hospital volumes have trended
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 for May 2022. Unfortunately, the report shows that hospitals across the country are still struggling financially. Today I’m joined by Erik Swanson of Kaufman Hall to discuss the result of this latest report. Eric, welcome back to the show.
Erik Swanson: Thanks for having me again, Michael. It’s great to be here.
Mike: So, Erik, what would you say are some of the top takeaways from your May report?
Erik: Yes. Well, thank you. And I think you stated the context appropriately, but let me restate it, and then talk about a few of the findings that we saw. So as you mentioned, from April, unfortunately, it was not a particularly good month– in fact, it was quite challenging. What we saw was a pullback in volumes and revenues, alongside some continued expense pressures leading to the fourth month this year with negative margins. And underneath that context, what we see here is that the emergency department is no longer the hospital’s front door. So many patients appear to be seeking care outside the hospital and choosing a variety of different methods in which they receive that care. We also see that the patients coming into the hospital are coming in sicker, likely due to earlier delays in care, and perhaps also due to the rise in COVID cases that we began to see in April, as well. Those expense pressures remain high and have been since the beginning of this year, and even the end of last year. And again, some of this is also driven by the utilization of contract labor driving up some of those labor expenses. And then finally, important to note as a key takeaway here is that, given that this is the fourth month of negative margins, it’s really beginning to take a financial toll on hospitals and health systems, leading to some outcomes where they’re having to, potentially, delay strategic plans and capital investments, and even begin to consider the type of care that is being delivered, and certainly foreshadows a challenging remainder of this year.
Mike: So let’s dig into some of the specifics around what you just said, Erik. How would you say the hospital margins fared in April?
Erik: Unfortunately, quite poorly. So the median operating margin in April was -2.85%. And cumulatively, through the first four months of the year, was -3.09%. And even in good years margins are very thin for hospitals, but given that we’ve now had four months with hospital margins being in the negative, it is an incredibly challenging situation. I think it’s also worth noting that what adds to this challenge is that there is no additional care stimulus funding to help buoy these results, as we’ve seen in years past, leading to what we saw in this most recent report, with those negative margins being down nearly 50% or greater, relative to last year.
Mike: And everyone’s been hopeful that volumes would begin to rebound in 2022. Did you find that to be the case?
Erik: In general, that has not been the case, but we can mention a few of the bright spots. So to begin with, in general, volumes still remain relatively soft. So the inpatient discharges are down nearly 4.5% from last year, and patient [stay?] is down by about 1.8%. We have seen some ebbs and flows in these volumes, and in particular March, there was a slight increase, however, they remain down, relative to pre-pandemic levels, generally. It is worth noting, though, that the average length of stay– so of those patients that are coming into the hospital, as I alluded to earlier, are sicker, and are thus staying longer. So the patient base is not as deeply depressed as the discharges, but that speaks to the types of patients being slightly sicker. ED visits are slightly up from where they were last year. But, again, to set the context here, the emergency department, relative to pre-pandemic levels, is still quite depressed. And, again, this highlights patients seeking that care through their primary care physicians, urgent care centers, and various telemedicine offerings. The one thing I will mention from volumes is that what we are seeing here, and seeing the first few months of this year, is that the outpatient revenues are slightly up year over year, as we see a bit more activity occurring on the outpatient side. But as mentioned, again, the inpatient volume still tend to be quite anemic.
Mike: Okay. So we covered margins and we talked about volume. So when we add it all up, what did revenue and expenses look like for the month?
Erik: Yeah. Both of these follow similarly to what we’re seeing with the volume. So it’s important to note here that, as we had that slight pullback in volume on a month over month basis, revenues consistently fell across the board, as well. So when compared with last year, inpatient revenue is down about 1.3%. But as I mentioned, that outpatient revenue is actually up about 3.5%, highlighting that shift away from inpatient care. The revenues, on a volume adjusted basis, again, are a bit mixed. And, again, this owes to the fact of an increased length of stay type patient. So on a per discharge basis, revenues are up, but when adjusting for how long those patients are staying– actually down -2.2% from last year. So, in general, revenues tend to be soft, relative to what we’re seeing. And unfortunately, while those revenues are soft, expenses have continued to remain quite elevated. So total expense is up about 8.3% from last year. And this is primarily driven by the labor expense increases, which are up by about 11% on a year over year basis, or 15% on a volume adjusted basis. This is mostly due, as I alluded to earlier, to the increased labor pressures both from the rate increases, as we’ve seen some increased competition on the rates side in the market, as well as the utilization of contract and agency labor, which is also a very expensive and premium labor component. Non-labor expenses also remain elevated– about 4.5% last year. And in this most recent month, much of the non-labor expense increases is owing to an increase in both supply and purchase service type expenses. And so many organizations again are reevaluating their supply chain to think about how they can potentially influence that.
I should mention that, within the report, what you’ll see is that drug expenses drop this month slightly, again, as those volumes pull back. However, those drug expenses are still elevated from pre-pandemic levels, as both the cost of the drugs has increased slightly, as well as the utilization of more expensive type drugs and specialty pharmaceuticals. So, in general, unfortunately, revenues remain soft and expenses remain quite elevated, which ultimately leads to that conclusion, owing to the decreased margins that we’re seeing.
Mike: Well, it certainly continues to be a challenging time in healthcare. Erik, if someone wanted to get a copy of the latest report, where can they go?
Erik: Yeah. Absolutely. So they can access the report at kaufmanhall.com under the data analysis and tools tab. And individuals can go there to subscribe to any future issues, as well as access the monthly data pack that supports the report, as well.
Mike: Erik, thanks so much for joining us on the podcast again today.
Erik: Thanks so much for having me, Michael.
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