Not-for-profit hospitals have seen a tough operating environment over the past few years, but the financial challenges aren’t likely to let up in 2023, according to a new report from Fitch Ratings.
Many hospitals are operating at nearly a breakeven point, with margins at 0.9% for fiscal year 2022. That’s compared to a 3.8% margin in 2021 for hospitals with a mid-year fiscal year end (FYE). In fact, the decline in operating results could be even more pronounced later this year when Fitch looks at full-year mediums, as hospitals with later FYEs “bore the full brunt of intensifying financial pressures in 2022, including labor inflation and market volatility,” the report stated.
One of the biggest reasons for the decline in margins in 2022 is due to a loss of federal stimulus funds that had been provided since 2020 when the COVID-19 pandemic began. Hospitals were left without this additional funding this year, so even with higher patient revenues, many are operating in the red.
“Fitch does not expect a rapid financial recovery for most providers, although hospitals under operational pressure will begin to see breakeven results on at least a month-to-month basis at some point in 2023 with revenue growth and expense pressures easing,” the report noted. “Nevertheless, margins are not expected to return to pre-pandemic levels for quite some time.”
Further, hospitals are facing higher expenses, namely labor expenses and generally higher inflation. According to Fitch, median year-over-year increases to salaries, wages, fees and benefits were up 11.1% and other expenses rose 7.4%. Reducing these higher expenses is key to improving margins, as expenses are outpacing revenue growth. However, a labor crunch in the healthcare space is unlikely to provide immediate relief.
“Salary expenses, which are the largest expense component, started to moderate somewhat beginning in 2H22, although labor shortages will continue to keep upward pressure on wages until the level and cost of contract labor materially subsides,” Fitch said.
At the same time, staffing shortages are hampering increasing patient volumes and associated revenue. In particular, the ability to discharge patients has been “dramatically” affected by the unavailability of nursing beds, Fitch said, and this national trend is more pronounced in certain markets.
Amy joined TriMed Media as a Senior Writer for HealthExec after covering home care for three years. When not writing about all things healthcare, she fulfills her lifelong dream of becoming a pirate by sailing in regattas and enjoying rum. Fun fact: she sailed 333 miles across Lake Michigan in the Chicago Yacht Club "Race to Mackinac."