Leading into, during, and now post pandemic, hospitals have been on a financial rollercoaster.
Higher hospital operating margins in 2020 and 2021 have given way to the new realities in 2022. Inflation, the higher cost of goods and services, and higher interest rates, the cost of borrowing money, put pressure on hospitals’ cash reserves. Not until March 2023 did hospitals have an overall positive operating margin of 0.1 percent.
Hospitals continue to show financial performance improve recording operating margins of 0.15 and 0.2 percent in April and May 2023, respectively. While this is good news, we must also realize that these operating margins are well below the norms for this industry. Clearly, we have a way to go to recover from 2022.
The pandemic changed many things. Hospitals went from being at surge capacity for months and months during the pandemic to now trying to encourage patients to come back for their routine care. According to Kaufman Hall, “Discharges, emergency department visits and operating room minutes all climbed, although very modestly on a year-to-date basis.” Physicians and market innovators have provided treatment alternatives for patients who were hesitant to visit their local hospitals. Now, these convenient treatment alternatives have provided competition to hospitals providing similar services.
In fact, hospitals are, in some cases, providing significant competition to their own inpatient services. Hospital outpatient revenue is growing significantly faster than inpatient revenue. Hospitals are participating in some of the benefits of healthcare innovation and have developed outpatient programs that can safely and effectively provide more healthcare services in a lower cost setting.
Looking at some simple comparisons, Operating Margins year-over-year from May 2023 compared to May 2022 are 33 percent higher. EBIDA, a measure of profitability, for that same
comparison has improved by 27 percent.
Another positive is that labor costs seem to be in better control. Labor expense per adjusted discharge is down 11 percent when comparing Y-T-D 2022 to 2023.
Hospitals are resilient. Even hospital leaders realize that if they are to remain resilient, they must change to remain competitive with the ever growing medical provider market. Hospitals will also attempt to find alternative solutions to the continuing challenges presented by supply shortages and ever increasing drug prices.
Yes, 2022 was not a good year for hospitals, but, like the Phoenix, hospitals are reinventing themselves to be part of the new healthcare paradigm.
