In September, hospitals faced financial challenges due to rising labor expenses and workforce shortages, impacting their overall performance, according to Kaufman Hall’s reports. The monthly operating margin index dropped from 3.5% in August to 1.0% in September. Physician practices also experienced increased labor costs despite decreased support staff. Providers received lower compensation per work unit despite rising productivity. Kaufman Hall emphasized the need for long-term solutions, suggesting the creation of flexible staffing pools and strategic deployment of support staff. Retaining support staff through career advancement opportunities was highlighted amid the competitive labor market pressures.
Hospital financial performance faced a setback in September due to ongoing workforce challenges, particularly the escalating labor expenses, according to the latest “National Hospital Flash Report” by healthcare consulting firm Kaufman Hall. The report, based on financial data from over 1,300 hospitals, revealed a slight decline in overall hospital financial performance compared to the previous month. The monthly operating margin index, calculated by Kaufman Hall, dropped from 3.5 percent in August to 1.0 percent in September, while labor expenses per adjusted discharge rose by 4 percent from August. Hospitals also experienced increased levels of bad debt and charity care on a year-over-year basis.
Furthermore, all categories saw a decrease in volumes, further impacting hospital financial performance in September. Despite these challenges, the report highlighted that hospital bottom lines were still comparatively healthier than the previous year, and year-to-date margins showed a slight increase.
However, the report also raised concerns for both hospitals and physician practices. Labor expenses continued to rise for physician practices overall, both in absolute terms and as a share of revenue, even though there was a decrease in overall support staff to provider work relative value units (wRVUs), according to Kaufman Hall’s “Physician Flash Report,” which analyzed data from over 200,000 employed providers.
The report noted that providers were receiving less compensation per wRVU, despite overall revenue and productivity increases in the third quarter of 2023. The investment per provider was $223,530 at the time, indicating slow improvement. This figure represented a 1 percent increase from the third quarter of 2022 and an 8 percent increase from the third quarter of 2021.
Erik Swanson, senior vice president of Data and Analytics at Kaufman Hall, emphasized the persistent challenge of labor costs for hospitals and health systems. He stressed the need for long-term solutions to address ongoing workforce issues.
The report outlined several action steps for hospitals and health systems, including the creation of a robust and flexible staffing pool as an alternative to travel contracts. A previous report by the American Hospital Association (AHA) and Syntellis revealed that hospitals had increased spending on contract labor by 258 percent in the previous year to address clinician shortages and rising patient demand. Kaufman Hall’s “Physician Flash Report” also highlighted the competitive nature of the market for support staff, leading healthcare organizations to grapple with staffing shortages as teams struggled to keep up with growing productivity.
Matthew Bates, managing director and Physician Enterprise service line lead at Kaufman Hall, emphasized the need for organizations to examine their staffing mix strategically and deploy support staff effectively to support their most productive providers. He also emphasized the importance of retaining support staff by establishing clear career paths and opportunities for advancement in this competitive labor market.