Left unchecked, these challenges may continue to negatively impact finances and quality of care.
The changing healthcare economy has hospitals and systems struggling to maintain financial stability with narrow profit margins.
A new report from AHA details the shaky state of the sector’s finances, attributing it to different factors including low reimbursement, inflation, and labor costs.
Reimbursements and investments
Payer reimbursements not covering the cost of care have been a longstanding issue and a growing aging population is putting pressure on Medicare and Medicaid. According to the report, Medicare and Medicaid underpayments for inpatient services totaled over $130 billion in 2022, with Medicare paying 82 cents per dollar that hospitals paid.
Hospital finances also take a hit from administrative expenses, mainly, as the report notes, due to practices by commercial health payers, as well as Medicare. The time staff spend appealing claims and sorting through prior authorization requirements takes away from more important tasks.
Additionally, there have also been substantial investments, with many systems prioritizing digital expansion, strengthening digital infrastructure, and cybersecurity.
Drug shortage and supplies inflation
The ongoing drug shortage, along with increasing costs, has added 20% to hospitals budgets. Per the report, 2023 had the most drug shortages in over a decade, with an average of 301 drugs in shortage each quarter.
Expenses for hospital supplies strained budgets further—about 10.5% of a hospital’s budget—with many supplies being difficult to secure due to supply chain issues.
Labor
Labor costs account for over 60% of an average hospital’s expenses, with costs increasing from $42.5 billion to $839 billion between 2021 and 2023. The report does note, however, that labor costs fluctuate based on the demand for care services and supply of talent.
The report attributes high turnover rates, along with the number of healthcare professionals leaving the field altogether, to burnout among clinicians. This may cause labor costs to continue to rise, if left unaddressed.
OSF Health saw its share of workforce disruption in 2022, with the system's operating margin falling to -3% the same year. To supplement the work of their staff, the system leaned on revenue cycle technology.
"We use many vendors as extensions of revenue cycle to assist with some of the niche billing requirements," Rene Woerner-Utley, vice president of patient accounts, previously told HealthLeaders.
"These include, but are not limited to, vendors for workers [compensation] and third-party liability billing, second level clinical denials, low dollar account collection, and coordinattion of benefits collection, to name a few."
Jasmyne Ray is the revenue cycle editor at HealthLeaders.
KEY TAKEAWAYS
Medicare reimbursements are paying 82 cents per dollar that hospitals pay to provide care.
2023 had an average of 301 drugs in shortage each quarter.
Labor costs make up over 60% of expenses, with high turnover and employee burnout contributing to it.