Hospitals Still Expected to End 2022 in The Red—Can Rev Cycle Help?

The newest Kaufman Hall analysis finds hospital margins are still well below pre-pandemic levels but streamlining certain revenue cycle processes may help save.

Hospitals are still battling fluctuating margins in 2022 due to high expenses and low volume compared to pre-pandemic levels, making it likely that they will end the year in the red, according to the latest National Hospital Flash Report from Kaufman Hall.

According to the report, which draws on data from more than 900 hospitals, the median operating margins are in the red for eighth straight month.

The report goes on to say that the median year-to-date operating margin index was -0.3% in August. Operating margins improved slightly in August, increasing by a median of 4.2 percentage points over July 2022, but remain down by a median of 2.1 percentage points from August 2021.

The report also found that while patient volume is on the rise, hospitals are facing new competition for outpatient care.

"August was a better month for hospital patient volumes with both elective surgeries and discharges up, which combined to improve revenues," said Erik Swanson, senior vice president of data and analytics with Kaufman Hall.

"Despite the short-term improvements, though, overall hospital performance is still well below pre-pandemic levels. In addition, hospitals need to reckon with new market entrants, like urgent care centers and free-standing surgery centers, that are chipping away at hospital outpatient revenues and overall margins," Swanson said.

The good news is that these increases in volume improved hospitals' revenue performance in August. "Gross operating revenue was up 9.1% from July 2022. Outpatient revenue jumped 10.9% month-over-month, while inpatient revenue increased 4.9%," the report said.

As HealthLeaders reported last month, between June and July of this year, hospitals' financial performance plunged, following months of improvements, due to declining outpatient revenue, expensive inpatient stays, and decreasing operating room time. 

"Hospitals fared slightly better in August than they did in July, but they still face an extremely difficult path forward," Swanson said.

So, what can revenue cycle leaders do to help improve the bottom line? According to a recent survey, revenue cycle automation might be the key.

Healthcare leaders who use automation within the revenue cycle reported having an average cost-to-collect of 3.51% compared to 3.74% for those who don't leverage automation. According to the survey, that .25% difference could potentially save hospitals and health systems millions of dollars.

For example, according to the survey, if a health system has $5 billion in revenue, a cost-to-collect of 3.74 percent without using automation would equal $187 million. If the same health system automated its revenue cycle operations and had a cost-to-collect of 3.51 percent, it would amount to $175.5 million.

This signifies $11.5 million in savings from automating revenue cycle operations.