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Hospitals Continue to Experience Higher Expenses, Lower Margins, Says Kaufman Hall

The latest report from Kaufman Hall shows hospital operating margins in 2023 have improved somewhat from last year but are still a long way from pre-pandemic levels. Overall, expenses are higher this year compared to 2020 while inpatient volumes have yet to catch up.

Nationwide, hospitals’ year-to-date 2023 operating margins – covering the months of January and February – are up 25% compared to the same period in 2022, but are 32% lower than the same period in 2020, the last months before pandemic-related changes hit the United States.

Supply and labor costs are still significant drivers, with total labor expenses 17% higher and supply expenses 14% higher than 2020. Drug expenses were up 17% and purchased services up 19%.

At the same time, volumes are still substantially lower, with discharges down 10% and emergency department (ED) visits down 9%. Operating room minutes nearly reached 2020 levels, falling just 1% lower.

There are slight improvements over 2022, however, which was a difficult year for hospitals. Compared to last year, discharges are up 3%, ED visits are up 6% and operating room minutes are up 15%.

How does the Midwest compare?

Hospitals in the Midwest are lagging behind the nation in their recovery. Hospital operating margins in the Midwest are down 41% YTD 2023 compared to 2020.

Expenses in categories like labor, supplies, drugs and purchased services are up compared to 2020, but these increases are not as great as what is occurring nationwide. However, patient volumes in the Midwest are down significantly more. Discharges are down 16%, ED visits are down 12% and operating minutes are down 6% so far in 2023 compared to 2020.

Despite this, 2023 so far is showing some signs of improvement over 2022. Margins in the Midwest are up 14% YTD 2023 compared to last year, and net operating revenues are up 2%.

Growth in Outpatient Services

In the Midwest, inpatient revenues are up just 1% YTD 2023 compared to 2020 and are down 4% compared to 2022. But there has been significant growth in outpatient revenues, which are 15% higher than last year and 17% higher than 2020.

This tracks with the nationwide trend, which is also showing generally flat inpatient revenues but growth in outpatient, which are up 17% compared to 2022 and 18% compared to 2020.