Hospital financial stability is at risk as expenses continue to rise, posing a threat to their operating margins, according to a report by Syntellis Performance Solutions. Rising labor costs for nurses have been driving the upward trend in expenses, while hospitals struggle with narrow operating margins. Despite a positive operating margin in April, the continuous increase in expenses raises concerns about future stability. Physician practices have also experienced operational changes, with increased investment and expenses per physician, but also higher physician revenues.
Hospitals are facing a concerning trend of rising expenses, posing a threat to their financial stability, according to a report by Syntellis Performance Solutions. The study, based on data from over 135,000 physicians and more than 1,300 hospitals, reveals that total expenses have increased for twelve consecutive months, largely driven by soaring labor costs for nurses.
While hospital operating margins remained positive in April, the continuous year-over-year increase in expenses raises concerns about future stability. The operating margins, which had been negative for 15 consecutive months before March 2023, showed a slight improvement, standing at 0.4 percent for the second consecutive month.
Compared to April 2022, the median change in operating margin rose by 3.1 percentage points in April 2023, marking the fourth month of year-over-year increases following twelve months of declines. Similarly, the median change in operating EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin increased by 2.8 percentage points year-over-year.
However, there was a decline in the median changes for both the operating margin and operating EBITDA margin in March 2023, with a respective decrease of 2.7 and 2.4 percentage points.
Steve Wasson, the executive vice president and general manager for Data and Intelligence Solutions at Syntellis, expressed cautious optimism about the steadying of hospital operating margins but highlighted the precarious financial situation faced by hospitals. He stated that relentless expense increases, combined with other economic and industry challenges, could plunge hospitals back into the red at any time.
The positive operating margin in April was driven by revenue growth surpassing expense increases. Gross operating revenue and outpatient revenue both grew by 7.2 percent compared to the previous year but experienced declines of 8.4 percent and 9.1 percent, respectively, from March 2023. Inpatient revenue increased by 6 percent year-over-year but declined by 7.4 percent from the previous month.
Meanwhile, total expenses, including both labor and non-labor expenses, increased by 2.2 percent and 3.7 percent, respectively, compared to the previous year, marking the twelfth consecutive month of year-over-year increases. Labor expenses have particularly been on the rise, with an 11-month streak of year-over-year growth. In April, nursing labor expenses per patient day increased by 17.6 percent from April 2021, emphasizing the impact of staffing shortages. Over the past two years, approximately 100,000 registered nurses have left the workforce, and an additional 610,000 plan to exit by 2027.
Although expenses continued to rise compared to the previous year, there was a decline from March to April. Total expenses decreased by 4.8 percent, total non-labor expenses were down 6 percent, and total labor expenses fell by 3 percent.
The report also sheds light on the operational changes experienced by physician practices. Investment per physician full-time equivalent (FTE) increased by 8.5 percent, total direct expenses per physician FTE rose by 6.2 percent, and physician revenues grew by 8.3 percent compared to the previous year.