Dive Brief:
- Hospital finances broke even in April with a 0% median operating margin compared with -0.3% in March amid rising labor costs and inflation, according to the May 2023 National Hospital Flash Report by healthcare management consulting firm Kaufman Hall.
- An increase in “bad debt” and charity care could illustrate the beginning effects of mass Medicaid disenrollment, the report noted.
- Patient volumes decreased and the length of hospital stays increased, Kaufman Hall reported. However, emergency department volumes did not show a change.
Dive Insight:
The Kaufman Hall report, which incorporates data from on 900 hospitals from enterprise software company Syntellis Performance Solutions, noted an emerging trend in Medicaid disenrollment after the COVID-19 public health emergency ended last month. Expired continuous enrollment provisions allowed states to begin Medicaid redeterminations in April.
“With states conducting their Medicaid eligibility redetermination, it’s predicted that hundreds of thousands of people will ultimately become uninsured,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement. “The data indicates that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care.”
Meanwhile, inflation and high expenses are placing a burden on hospitals as they recover from COVID-related challenges. Hospital labor expenses rose 3% in April from March, according to the report.
“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” Swanson said. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”
The rate of inflation along with the impact of staffing shortages also cut into compensation for primary care physicians, according to a recent survey by the Medical Group Management Association. However, growth in median total compensation for primary care physicians still doubled in 2022, from pay growth of 2.13% in 2021 to 4.41% in 2022.
Hospital margins had been stabilizing in Kaufman Hall’s monthly flash report for March. It reported a median year-to-date operating margin index for hospitals at -1.1% in February, compared to -0.8% in January. Elevated labor costs were a factor in persistent negative margins for hospitals in 2022.