U.S. Hospitals Will Lose Billions of Dollars in 2022

For year to date, many hospitals report sizeable losses in both patient revenue and investments

CEO SUMMARY: Hospitals and health systems in most regions of the United States are reporting substantial losses, both in patient care and in the value of their investment portfoĀ­lios. This is inauspicious for the clinical laboratories operated by these hospitals. Hospital-based managers can expect more pressure to cut lab costs continually, even as they must simulĀ­taneously deal with steady increases in the cost of labor their hospital lab requires to service the needs of inpatients.

Recent reports on the state of hospital finances in the United States through August 2022 paint a troubling picture for this sector of the healthcare system. Experts say that more than half of the nationā€™s hospitals are running in the red amid declining patient volumes and inflation-fueled increases in supply prices and salaries.

This is bad news for the managers and pathologists working in the clinical laboĀ­ratories of hospitals and integrated health systems because this is the third consecuĀ­tive year of deteriorating finances for the hospital industry.

Across the board, hospitals are squeezing costs wherever possible. For many hospital-based labs, 2022 is the third consecutive year that administraĀ­tors asked their clinical labs to cut spendĀ­ing below the original budget amounts for the year. The financial picture for hospitals in 2023 is expected to be equally gloomy.

It is not an exaggeration to characĀ­terize hospital losses as a tsunami of red ink. There are few national news stories about the magnitude of financial loses at hospitals. One reason this is true is because healthcare policymakers and hosĀ­pital CEOs do not want negative news coverage that might erode the confidence patients have in the quality of care proĀ­vided by their local hospital.

Despite the fact that there is not much local and national news coverage about the decline in hospital revenues and the deterioration in their financial condition, industry consultants and Wall Street firms are publishing reports that highlight these critical financial issues.

For example, in its ā€œNational Hospital Flash Reportā€ for August 2022, a report prepared by Kaufman Hall for the American Hospital Association (AHA), the authors wrote this summary:

U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the pandemic, and 2022 continues to be on pace to be the worst year of the pandemic in terms of financial perĀ­formance … Hospitals can no longer count on supplemental [COVID-19] federal funding to buffer these mountĀ­ing losses, as they did in previous pandemic years. The situation is so dire that on August 16 Fitch Ratings revised its sector outlook for U.S. not-for-profit hospitals and health systems to ā€˜deteriorating.ā€™

Chicago-based Kaufman Hall did not provide an estimate of the collective losses at the nationā€™s hospitals in either its August or September 2022 reports. However, the American Hospital Association published a report in early 2021 titled ā€œHospitals Face Continued Financial Challenges One Year into the COVID-19 Pandemic.ā€ In this report, AHA wrote:

In 2020, hospitals were projected to lose an estimated $323 billion, leaving nearly half of Americaā€™s hospitals and health systems with negative operating margins by the end of 2020.

Magnitude of Financial Woes

Simple math illustrates the magnitude of financial losses at the nationā€™s hospitals during 2020. Published government data shows the total healthcare spend in the United States as $4.1 trillion. Of that, $1.3 trillion was spent on hospital care.

Therefore, AHAā€™s projection of a colĀ­lective loss in 2020 of $323 billionā€”a third of a trillion dollarsā€”represents an amount equal to 25% of collective hospiĀ­tal revenue during that year! Comparable data for 2021 was not found, but it is reasonable to assume that the collective losses at the nationā€™s hospitals that year were substantial and totaled in the hunĀ­dreds of billions of dollars.

Across the nation, there are some reports of the financial performance of hospitals. Earlier this month, the Washington State Hospital Association published the results of its second finanĀ­cial survey of state hospitals during 2022.

The Seattle Times wrote, ā€œResults of the associationā€™s first survey, released in July, showed Washington hospitals sufĀ­fered a net loss of about $929 million in the first three months of 2022. That numĀ­ber has increased to nearly $1.8 billion for the first six months of the year, meaning hospitals lost another $820 million in the second quarter of 2022.ā€

There are about 91 acute care hospitals in Washington. Dividing those 91 hospiĀ­tals into the $1.8 billion loss for the first six months of 2020 reveals that the averĀ­age loss for a hospital in Washington State during that time was almost $20 million.

$250 Million Loss for YTD

Also in the same story about hospiĀ­tal finances, The Seattle Times wrote, ā€œMultiCare [with eight hospitals], based in Tacoma, has experienced more than a $250 million loss so far this year, includĀ­ing a $22 million loss in August.ā€

It is a similar story at Kaiser Permanente. In August, Healthcare Dive noted that, ā€œKaiser Permanente reported a net loss of $1.3 billion in the second quarĀ­ter, compared to net income of $3 billion in the same period a year ago, stung by investment market conditions.ā€

In the Midwest, the problems of finances and staff at one Michigan inteĀ­grated delivery network was highlighted in a report published by Fierce Healthcare. Reporter Dave Muoio wrote:

Mike Slubowski, president and CEO of 88-hospital Trinity Health, said his organization has nearly 3,900 vacant registered nurse positions as well as a 14% clinical support staff vacancy rate.

The staff shortages ā€œare like nothing weā€™ve ever seen before,ā€ he said, and have forced Trinity to take 12% of its beds, 5% of its operating rooms, and 13% of its emergency departments offline.

ā€œWe have some locations with as high as 20% to 25% of their beds offline, and half of their operating rooms and diagnostic services offline due to nurse staffing shortages,ā€ he said. ā€œWeā€™re doing all we can including innovating how we deliver patient care, but it isnā€™t enough. Hospitals, long-term care facilĀ­ities, home care, and physician practices lack the resources needed to solve the healthcare workforce crisis ourselves.ā€

Three Biggest Trends Today

Meanwhile, there is plenty of news covĀ­erage about the three biggest trends hamĀ­mering hospitals, physician clinics, and ancillary providers, including clinical labĀ­oratories. Those trends are:

  • Ongoing pressures to continually cut costs by substantial amounts.
  • Urgent need to recruit, hire, and retain adequate staff in all skill positions.
  • Inflation rates that are the highest in 40 years and show no signs of easing.

Inflation is the new and unwelcome contributor to the higher costs of clinical lab and pathology instruments, tests, and consumablesā€”along with fueling a steady increase in staff salaries.

This intelligence briefing provides lab managers, pathologists, and their practice administrators with a more detailed picĀ­ture about the scope and scale of the eroĀ­sion of hospital finances now happening throughout the United States.

One consequence of these trends will be an increase in the number of hospitals that decide to sell their lab outreach busiĀ­nesses to bolster their cash reserve.

Contact Robert L. Michel at rmichel@darkreport.com.

 

Statistics for Hospital Woes in 2022 Illustrate the Wide Spectrum of Problems and Challenges

Third quarter financial reports will soon be released by hospitals and health systems that hold debt sold to the public. It is expected that more than 50% of the nationā€™s hospitals will report losses during 2022.

In September, consulting firm Kaufman Hall issued a report it prepared for the American Hospital Association. It was titled ā€œThe Current State of Hospital Finances: Fall 2022 Update.ā€

Hospital Industry Finances

This report included information that is helpful for those lab administrators and pathologists serving in hospital laboratories who want to better understand how current market forces are eroding hospital finances. Kaufman Hall wrote:

    • ā€œMore than half of hospitals are projected to have negative margins through 2022. Projections for the remainder of the year demonstrate an increase in hospitals with negative margins relative to prepandemic levels, to 53%.
    • ā€œExpenses are significantly elevated from prepandemic levels. Expenses are projected to increase throughout the rest of 2022, leading to an increase of nearly $135 billion over 2021 levĀ­els. Labor expenses are projected to increase by $86 billion, while non-labor expenses are projected to increase by $49 billion. [Editorā€™s note: Assume hosĀ­pital revenue of $1.5 trillion during 2022. Kaufman Hallā€™s projection of increased costs of labor and non-labor during 2022 is $135 billion. That is 9% of the $1.5 trilĀ­lion in projected 2022 hospital revenue.]
    • ā€œHospitals also are facing a host of other related challenges, including workforce shortages, supply disrupĀ­tions, and rising expenses.
    • ā€œProjections for the entirety of 2022 indicate an increase in hospitals with negative margins, to 53%. Under a pessimistic scenario for 2022, 68% of hospitals would have negative margins.ā€

In October, Medical Economics pubĀ­lished a story about deteriorating finances of hospitals that showed the magnitude of certain trends. It noted that inpatient orthopedics volume for osteoarthritis care (including total knee replacement patients) is down 80% for 2022 YTD compared to the same period in 2019.

In the same story, Steve Lefar, chief strategy officer at Strata, said, ā€œThe StrataSphere data shows the U.S. health care industry is comprised of ā€˜haves and have nots,ā€™ with far too many on the ā€˜have notā€™ side. … Inpatient volumes have not yet returned to pre-COVID levels. Cases are moving away from profitable procedures, and outpatient volumes have only made slight gains since 2019. Health systems, regulators, and industry analysts must rethink how they model a variety of future state scenarios.ā€

Financial Struggles Ahead

Over the past 15 years, Wall Street firms have published reports and studies that documented financial strength was deterioĀ­rating at an increasing number of hospitals and integrated delivery networks (IDN). (See TDR, ā€œNew Report Says Half Nationā€™s Hospitals Have Financial Woes,ā€ May 27, 2008.)

During this same 15 years, a majority of mergers involving hospitals and inteĀ­grated delivery networks happened because one party to the merger could no longer operate independently due to years of financial losses. The data presented above indicate that more hospital consoliĀ­dation may happen soon.

 

Nurse Pay Skyrockets, Operating Rooms Closed

Just as hospital labs across the United States cannot hire and retain adequate numbers of clinical lab scientists and staff, hospitals have similar staffing problems, particularly with nurses.

Timely, accurate data on the rate of pay increases for lab scientists is not easily found. However, there are news stories documenting increases in compensation paid to nurses.

In covering how the money hospitals spend on salaries is rising, Kaiser Health News (KHN) recently wrote about the hospital staffing shortage. It included one example that shows how much labor costs have risen during 2022.

KHN quoted Brad Ludford, CFO at Bozeman Health in Bozeman, Mont. Ludford explained how the the system ā€œwent from spending less than $100,000 a month on short-term workers before the pandemic to $1.2 million a week last fall.ā€

Currently, Bozeman Health spends $1.4 million per month on short-term workers. He said total labor costs are now $20 million per month, an increase of about 12% from the same time last year. The health system has 487 open positions for ā€œessential workers.ā€

Bozeman Health President and CEO John Hill told KHN that, prior to eliminating staff positions, his organization took the following steps to cut costs:

    • All out-of-state business travel ceased.
    • Executive compensation was cut and workloads readjusted.
    • Attempts were made to convert hospital contract workers into full-time employees.
    • A minimum wage increase was offered to improve retention of existing staff members.

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