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Hospital Financial Performance Still Lagging Behind Pre-2020

Hospital business staff discussing healthcare financials data

Pre-covid performance seems to be a thing of the past as hospitals learn to navigate a new business environment.

The March 2023 Kaufman-Hall Hospital Flash Report is out, and it reveals some trends worth taking a look at. Armed with this information, reinforces the concept of a “new normal” in healthcare, in which there will be no going back to pre-pandemic conditions. Historical trends essentially don’t mean much, resulting in an uncharted frontier for healthcare leaders.

Trend 1 – margins are decreasing (again)

The Kaufman Hall data set is comprised of results from over 900  hospitals around the country and provides reliable data used all over the industry. The operating margin results are calculated from national median figures.

Margins have remained in the negative since the pandemic, although barely so in the last 5 months of 2022, holding steady at between -0.4 and -0.6.

Starting off 2023, we are seeing a decreasing margin trend for three straight months, ending February at -1.1%. In addition to this recent data, the larger trend reveals that this is the eighth straight month in which the variations in month-to-month margins have decreased relative to the last three years.

Trend 2 – Volumes are fairly steady

Volumes to emergency departments seem to not be returning, in spite of the winter months. There are regional pockets of high volumes, and some hospitals are reporting that they are “full” – frequently due to a lack of staffed beds rather than actual bed capacity. Discharges, patient days, and ED visits were all down in February compared to January (even accounting for the shorter month). The average length of stay in hospitals is down, and patient volumes are shifting to ambulatory settings.

Trend 3 – Outpatient settings are growing

Patient behavior seems to have shifted after COVID-19, with more patients seeking treatment in the outpatient setting. Ambulatory surgery centers, freestanding urgent cares, and other outpatient facilities are seeing moderate growth. To illustrate the stark differences between inpatient and outpatient projections, take a look at the following data from healthcare intelligence firm Sg2:

ADULT 2019 2020 2021 2022 2023 2024 2025 2026 2027
Outpatient 0% -20% -5% -3% 7% 9% 10% 11% 12%
Inpatient 0% -12% -5% -1% -1% 0% 0% 0% 0%

You can see the huge effect that the pandemic had from 2020-2022, and the subsequent projected growth (already on track in 2023) for outpatient care. Inpatient care has remained static, and if current economic conditions and healthcare policy remain the same, and likely to stay so indefinitely. Although emergency care is always needed, it is rarely profitable.

Trend 4 – Costs of goods and services are increasing, and labor holds steady.

Labor shortages are perhaps the number one strategic problem that healthcare organizations are facing these days. Labor expenses on an hourly basis, however, appear to be stabilizing and holding steady. This may be because volumes have stayed steady or decreased in some areas, lessening short-term emergency labor needs.

At the same time, inflation and the pricing of necessary goods and services are driving up the expenses side of the balance sheet. This external pressure, along with the persistent labor squeeze, is contributing to razor-thin margins.

Our Take on It

With these trends emerging for 1st quarter of 2023, the Healthrise predicts increasing investments by organizations into revenue cycle activities, seeking to modernize and add new efficiencies to processes, as well as more stable cash flow patterns. Labor shortages are also prompting innovative ways to manage existing staff and capitalize on existing resources. Software platforms that make staffing and load balancing of staff easier, as well as reduce administrative costs associated with filling shifts, are key investments.

Hospitals are also aware of the ongoing shift from fee-for-service to outcome-based value and will need to continue to optimize EHR processes, gather data, and continuously improve quality initiatives to remain competitive with value-based care initiatives.

Feeling overwhelmed with the current trends? It’s not all doom and gloom! Healthrise has a strategically assembled products and services designed to support organizations in the modern healthcare ecosystem and help them reach financial sustainability. Contact Healthrise for a free consultation to prioritize your strategy, provide solutions, and help you develop the right action plan for your organization.