Click to access KH-NHFR-2022-06.pdf

Summary
U.S. hospitals and health systems continued to face difficult financial
and operational headwinds in May. Operating margins rose from April
but remained significantly lower than pre-pandemic levels and May 2021.

Volumes were up slightly from the previous month, with rising ED
visits close to numbers last seen in 2019 and earlier.
Gross operating revenues rose month-over-month and in comparison
to May 2021. But expenses — especially labor costs — were elevated
across nearly every metric month-over-month.

Margins
The median Kaufman Hall Year-To-Date (YTD) Operating Margin Index
reflecting actual margins was -0.33% through May.
The median change in Operating Margin was up 18.9% from last month
but down 45.6% from May 2021. The median change in Operating
EBITDA Margin was up 13.5% month-over-month, but down 36.1% from
May 2021.

Volumes
Patient volumes rose in May, with Length of Stay (LOS) up 2.3% from
April and 5.5% compared to May 2021. Patient Days increased by 4.8%
month-over-month but dropped 0.5% versus May 2021. Adjusted
Patient Days grew 3.5% from April to May and were 4% above May 2021
levels. Adjusted Discharges rose slightly, at 0.6% month-over-month,
but were down 0.3% compared to May 2021. Surgeries barely
fluctuated, with Operating Room Minutes down 1.0% from last month
and up just 0.1% YOY. Emergency Department (ED) Visits jumped 9.5%
from April to May and were up 4.5% YOY.

Revenues
Volume increases resulted in slightly improved revenue performance in
May. Gross Operating Revenue was up 3.4% from April and 7.6% YOY,
and is up 6.9% YTD. Similarly, Outpatient (OP) Revenue rose 2.2% from
April levels, 9.4% YOY and is up 9.1% YTD. Inpatient (IP) Revenue
climbed 3.5% from the previous month and 2.6% from May 2021, and is
up 4.2% YTD.

Expenses
Total Expenses continued to climb in May, rising 1.1% from April and
10.7% from May 2021. Inflation and labor shortages contributed to
total costs climbing 10.4% YTD.

Labor Expense per Adjusted Discharge inched up by 1.0% from April
and has surged 13.6% YTD, while Full-Time Employees Per Adjusted
Occupied Bed (FTEs per AOB), is down by 2.7% YTD, indicating that
hospitals are spending more on labor costs with fewer hours worked.
However, FTEs per AOB rose slightly in May, up 2.8% from April. Total
Expense per Adjusted Discharge increased by 0.3% from April, and
Labor Expense per Adjusted Discharge rose 1.0% from last month.

Non-Operating
The Federal Reserve raised its benchmark rate by 75 basis points in
mid-June, the most aggressive increase since 1994, as inflation hit a
40-year high of 8.6% in May. New projections show The Federal Open
Market Committee (FOMC) participants expect the Fed to raise rates to
at least 3% this year, with half indicating 3.375%. Labor metrics remain
strong with unemployment reading 3.6% in May and employers adding
390,000 new jobs.

Consumer sentiment hit a record low reading of 50.2 in early June,
comparable to the low point reached during the 1980 recession. US
equities ended May with marginal gains after weeks of volatile trading
due to economic data and corporate earnings sowing doubt over the
health of the US economy.

Takeaways at a Glance

1. Nearly halfway through 2022, margins are cumulatively negative.
   While some metrics have normalized, hospitals continue to perform below pre-pandemic levels,
   and there is an uncertain outlook for the rest of the year.
2. Elevated labor costs remain a significant challenge.
   Hospitals are still seeing higher labor costs and fewer hours worked, a sign of inflation and an
   indicator that long-standing labor shortages are likely worsened by increased turnover.
3. Warmer temperatures and ED visits drove up volumes and revenues.
   Patients often schedule elective procedures during the summer months, which may have
   contributed to growing volumes. Emergency department visits also spiked this past month as
   people spent more time outdoors.
4. Pent-up demand for hospital services also contributed to an increase in patients.
   Sicker patients continued to schedule procedures they had previously postponed, suggesting
   a return to normalcy as COVID-19 hospitalizations remained relatively low.