Hospitals are facing some of the tightest financial pressures of the past several years and expecting billions in losses for 2022.
That’s according to the latest Fall 2022 Update on the state of hospital finances from Kaufman Hall. Hospitals have been hard hit financially by the COVID-19 pandemic, though federal support and additional funding helped hospitals stay above water through the heights of the pandemic. Now, hospitals are facing worsening margins, as well as high inflation rates and a tight labor market.
Through the rest of 2022, hospitals are bracing for margins to remain depressed, even negative, higher expenses and further losses.
“Ultimately, U.S. hospitals are likely to face billions of dollars in losses in 2022 under both optimistic and pessimistic models, which would result in the most difficult year for hospitals and health systems since the beginning of the pandemic with no foreseeable federal support,” the report stated. “These findings underscore the broad and serious threats America’s hospitals have faced—and continue to face in 2022—caring for their communities throughout unprecedented challenges.”
In fact, projected margins for the rest of the year puts 2022 on track to be the worst financial year for hospitals since the start of the COVID-19 pandemic. Project margins for 2022 are expected to be -37%, Kaufman Hall estimated. The first six months of 2022 were likely the toughest for hospitals, with a -102% margin. On the pessimistic side, projections for margins in 2022 could reach as low as -133%, the report noted.
In addition to worse margins overall, the number of hospitals operating with negative margins is expected to increase compared to pre-pandemic levels. More than half (53%) of hospitals are expected to end the year with negative margins, with a pessimistic projection of 68% of hospitals. During the first six months of 2022, 52% of hospitals had negative margins. That is compared to 34% of hospitals in 2019, 52% in 2020 and 36% in 2021.
One driver of negative expenses is higher expenses, which are on track to rise “dramatically” this year. Labor costs alone are expected to cost $86 billion more this year compared to 2021. Non-labor costs are expected to be $49 million higher, as well. Additionally, hospitals are not expecting any more federal funding, despite a new wave of COVID-19 infections.
Within the high labor expenses, employed labor costs are expected to be $57 billion more in 2022, while contract costs are expected to rise $29 billion. Contract labor has had a significant impact on hospitals throughout the pandemic, as demand for specific specialties has driven up wages.
“Contract labor expenses remain nearly 500% higher than pre-pandemic levels,” the report read.
Beyond labor, hospitals are bracing for higher expenses for supplies ($11 billion), purchased services ($7 billion) and drug expenses ($1 billion). Part of the higher expenses are due to record inflation levels, which reached 8.3% in August.