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Hospitals Projected to Lose Billions in 2022

Since the onset of the COVID-19 pandemic in March 2020, our nation’s hospitals and health systems have coped with intense pressure on staff and resources. The pandemic has illuminated pre-existing weaknesses in our system.

As hospital executives, policymakers, and other stakeholders assess the current landscape, key findings about hospital financial performance through the rest of 2022 are emerging.

The 2022 Current State of Hospital Finances by Kaufman Hall suggests that while our health system has been able to adapt in some ways to meet the challenges posed by COVID-19, significant challenges remain.

In particular, margins remain depressed relative to pre-pandemic levels. More than half of hospitals are projected to have negative margins through 2022.

Hospital Margins Remain Firmly Negative

Kaufman Hall reports that the first six months of 2022 have been extremely difficult, with the median margin remaining negative.

Optimistic projections for the entirety of 2022 indicate margins will be down 37% relative to pre-pandemic levels.

Pessimistic projections for 2022 show a possible 133% decline in margins.

As businesses continue to grapple with the fallout of the pandemic, it is clear that the next year will be a challenging one.

The Number of Hospitals Operating With Negative Margins is Increasing

Through the first half of 2022, the percentage of hospitals with negative margins was higher than the rate in 2021, owing primarily to the impacts of the Omicron COVID-19 surge and lack of further stimulus funding.

Projections for the entirety of 2022 indicate an increase in hospitals with negative margins, to 53%.

Under a pessimistic scenario for 2022, 68% of hospitals would have negative margins.

Expenses Keep Rising

Expenses are projected to increase throughout 2022, leading to an increase of nearly $135 billion over 2021 levels. This is due to increases in labor and non-labor expenses.

Labor expenses are projected to rise $86 billion in 2022, while non-labor expenses are projected to increase by $49 billion.

These increases are due to a variety of factors, including the continued impact of the Delta and Omicron surges. No additional federal support is expected following the devastating impacts of these events.

Non-Labor Expenses Will Continue to Rise

Non-labor expenses for U.S. hospitals are projected to increase in 2022, growing even more substantially over pre-pandemic levels. According to the Kaufman Hall study:

  • Expenses for supplies are projected to grow by $11 billion in 2022, primarily due to inflationary pressures
  • Expenses for purchased services—or services contracted to outside vendors—are projected to grow by $7 billion
  • Drug expenses are also expected to increase by $1 billion in 2022.
  • Other expenses—which include system shared services allocated to hospitals, depreciation, interest, maintenance, utilities, rent and lease, and software—constitute the remaining non-labor expense growth.

All expense categories are projected to remain approximately 20-25% above pre-pandemic levels, with drug and supplies increasing the most. Given these projections, hospitals will need to take steps to manage their non-labor expenses carefully in order to maintain financial health.

The Bottom Line

Hospitals are projected to lose billions of dollars in 2022 with projected margins substantially below pre-pandemic levels.

Under a pessimistic scenario, which includes the potential for future COVID-19 variant surges, increased rates of expense growth, sicker patients who have delayed care, aggressive payer negotiations, and an increased payer mix of non-commercial payers, hospitals will experience incredibly difficult financial challenges.

This combination of factors could lead to a perfect storm for hospitals, resulting in significant financial distress and even closures. The pandemic has already put immense strain on the healthcare system, and these challenges will only compound the existing problems. It is essential that hospitals take steps to prepare for this possibility and work to ensure that they are positioned to weather the storm.

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