Why 2022 Was The Worst Financial Year For Healthcare Since COVID-19 Began

December was the only month last year that hospitals saw positive year-to-date margins.

Hospitals and health systems have been struggling financially since before the pandemic, but the complications caused by the crisis exacerbated those financial challenges to the extreme, making it hard for some organizations to recover.

Each year since the beginning of the pandemic has seen increasing economic hardships thrust onto hospitals, but according to new data from Kaufman Hall, 2022 was the worst year financially for hospitals and health systems since COVID-19 began. The analysis shows that negative margins continued to plague organizations throughout the year while accelerating labor expenses also cause fiscal hardships for providers.

The median year-to-date operating margin index for hospitals was 0.2% in December, this was the only month in 2022 where hospitals saw positive year-to-date margins, according to findings in the latest National Hospital Flash Report from Kaufman Hall. Half of U.S. hospitals finished the year with a negative margin as rising expenses outpaced revenue increases. Hospital labor expenses increased by 2% from November to December 2022. Total direct expense per provider FTE increased to $592,430 in the fourth quarter of 2022, a 5% increase compared to the 2021 fourth quarter.

"As we saw throughout 2022, the labor market was unkind to hospitals and provider groups," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in the report. "Given that labor and non-labor expenses are unlikely to recede in 2023, hospitals can embrace better workforce management strategies and leverage their relationships with post-acute care settings to maximize current patient volume trends."

Throughout 2022, hospitals also saw a change in the way patients seek care. There was a rise in hospital patient volumes last year, particularly in outpatient settings because patients were moving away from emergency room visits and towards care that is delivered in ambulatory and outpatient surgical settings.

"The pandemic fueled a fundamental shift in how patients are choosing to access their routine care," Matthew Bates, managing director and physician enterprise service line lead with Kaufman Hall, said in the report. "Providers are seeing more patients than ever, particularly in primary care settings, and care is moving away from hospitals. Medical groups should seek to improve individual provider productivity and efficiently integrate advanced practice providers to meet the increase in volume and successfully bend the cost curve."