Despite gains, hospitals still performing below pre-pandemic levels

por John R. Fischer, Senior Reporter | February 18, 2022
Business Affairs
Omicron and nationwide labor shortages have caused negatively affected hospital performance, despite financial gains
Despite ending 2021 with greater financial gains than 2020, a new report suggests that healthcare providers are bogged down by lower overall performance compared to pre-pandemic levels.

Increased hospitalizations are plaguing hospitals, with many being COVID-19 related cases. The emergence of Omicron back in December led to a 98% increase in such cases and caused adjusted discharges to rise 5.5% and adjusted patient days to increase by 3.9%.

Further exacerbating the situation is a nationwide labor shortage, which has led to narrower competition for healthcare workers. This in turn has increased expenses, according to Kaufman Hall's latest National Hospital Flash Report and Physician Flash Report.

"As we enter the third year of the pandemic, hospital and health system leaders face worsening labor shortages that are driving up costs across healthcare. Organizations are having to pay high salaries to attract the workforce they need, while also paying more for drugs and other supplies,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall, in a statement.

As with earlier surges, the Omicron variant raised ED visits by 7.3% and increased the number of severely ill patients in need of longer hospital stays. Total expense per adjusted discharge was up 20.1% in 2020, compared to 2019, and labor expense per adjusted discharge was up 19.1%. Non-labor expense per adjusted discharge went up 19.9% for 2021, compared to pre-pandemic levels.

With CARES Act aid, the median operating margin rose from 2.8% in 2020 to 4% in 2021, due partially to month-over-month margin increases attributed to increased volumes. Without aid, the operating margin for 2020 was -0.9% and rose to 2.5% in 2021. The median change in operation was 49.5% with aid and 38% without it. This was down 14.7% without aid from December 2019.

But key volume metrics show lower lengths of hospital stays compared to 2019. And while thin, actual hospital margins surpassed 2020 levels, and employed physician groups came away with greater physician productivity and revenues compared to the fourth quarter of 2020. They did, however, incur growing expenses and high levels of investments and subsidies to support practice performance, with the median investment/subsidy per physician full-time equivalent at $263,001 for the fourth quarter. This was above figures around the same time in 2019 and 2020.

High expenses also drove this metric up by 5.9% compared to 2021’s third quarter, and reduced physician revenue and productivity gains. Total direct expense per physician FTE was $955,281 in the fourth quarter. This was 9% more than Q4 2019 and 16.3% more than Q4 2020. Expenses grew despite clinical and front desk staff levels declining, with support staff FTEs per 10,000 work Relative Value Units down 16.6% from Q4 2020. Staffing level decreases were particularly heavy in primary care.

According to another Kaufman Hall report from last month, sustained expense increases continue to outpace revenue growth. Per-patient expenses rose across all measures in November due to the nationwide labor shortages and global supply chain challenges. Expenses remained highly elevated relative to pre-pandemic trends.

"Physician expenses rose in the fourth quarter across all specialty cohorts, reflecting widespread challenges. Higher volumes, coupled with labor shortages, are contributing to rising costs," said Matthew Bates, managing director and physician enterprise service line lead at Kaufman Hall. "Healthcare leaders must take a hard look at their direct expenses and find ways to bend the cost curve moving forward."

The National Hospital Flash Report used data from over 900 hospitals, while the Physician Flash Report used it from nearly 100,000 providers in over 100 specialties. Data in both reports came from Syntellis Performance Solutions.

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