Dive Brief:

• Hospitals are likely to lose “billions of dollars” due to continued depressed margins and heightened labor costs, according to a report Thursday prepared for the American Hospital Association by Kaufman Hall.
• Even in the report’s optimistic model, more than half of all hospitals could end the year with negative margins, driven by an overall expected $135 billion increase in expenses this year and an $86 billion rise in labor costs alone.
• Hospitals are “sending up a distress flare about our ability to provide the care and services our communities need and depend on and the future of healthcare in this country,” said Michael Slubowski, president and CEO of Michigan-based Trinity Health, on a Thursday call with the AHA and Kaufman Hall.

Dive Insight:

Hospitals have faced continued depressed margins and steep financial losses this year as systems face significant labor shortages, increased expenses and sicker patients.

And, more than two years out from the onset of the COVID-19 pandemic, there looks to be no financial relief in sight for hospitals in 2022. The report’s most optimistic projections still has hospitals operating at margins 37% below pre-pandemic levels, with pessimistic projections falling to an overall margin decrease of 102%.

Labor expenses, driven by a record increase in physician and nursing burnout, are further squeezing hospitals. Slubowski reported that Trinity Health’s 92-hospital system had a never-before-seen healthcare worker shortage, with 3,900 vacant registered nurse positions at the system and a vacancy rate of 14% for its critical support staff.

Labor shortages are leading to delayed care at Trinity, including eight-hour emergency department waiting room times, patients scheduling specialty visits half-a-year in advance and significant backlogs in imaging and diagnostic services.

Some of the overall hospital labor expenses are due to a rise in contracted labor costs, which is likely to continue squeezing hospitals, but slow down over the rest of the year, according to the report. Contract labor prices are nearly 500% higher now compared to pre-pandemic levels.

Rural hospitals in particular are struggling this year, with the AHA reporting last week that rural hospitals faced a ”precarious” outlook due to rising expenses.

Peggy Abbott, CEO of Arkansas-based Ouachita County Medical Center, said on the call her rural system was “bleeding red” and struggling to survive.

The center was forced to close a rural health clinic that had been operating for 25 years in a small, impoverished community 20 miles away from the closest hospital due to financial losses, jeopardizing care access for vulnerable patients.

“When we see major system hospitals the posting losses that we are seeing year to date, that should sound the alarm among the powers that be,” Abbott said. “If something isn’t done to put a more equitable ratio between the operating cost of a hospital and the reimbursements that we receive, it could literally be the collapse of the healthcare system in America as we currently know it.”

Jack Lynch, president and CEO of Pennsylvania-based Main Line Health, called his system’s expenses and financial losses “unsustainable,” adding that the losses were exaggerated by “decades of underfunding” from the government and inadequate rate increases from commercial payers, especially due to inflation. 

Non-labor expenses are also expected to rise, with supply costs expected to rise $11 billion this year, primarily due to inflation. Drug prices are also expected to rise by $1 billion, according to the report.