Hospitals in the United States are hemorrhaging funding and many are sounding the alarm that they may not be able to continue operations unless skyrocketing costs and labor shortages are resolved in the coming months.
A report released last week by the American Hospital Association (AHA) and KaufmanHall projects that as many as 70 percent of hospitals in the United States may end 2022 losing money. Increased labor costs are the main contributor. Many have also struggled to generate income as labor shortages have reduced their ability to provide services.
One notable example of a hospital that has struggled is Mass General Brigham Hospital (MGH) in Boston, Massachusetts, which posted $949 million in losses in the third quarter of fiscal 2022, which ends in June. The hospital points to rising labor costs and staff shortages for unprecedented losses.
American hospitals have struggled during the pandemic. Many operations were postponed as a result of lockdowns and Covid restrictions. The pandemic has also caused an exodus of medical staff, specifically in nursing, leading many to rely on more expensive contract labor to perform their duties. As a result, even more nurses left their full-time roles for contractual roles, exacerbating the situation.
More than half of hospitals are projected to lose money in 2022, and in the worst case, nearly 70% will lose money for the entire year.
Mass General Hospital in Boston, Massachusetts posted quarterly losses of nearly $1 billion in the third quarter of fiscal 2022
“Hospitals stand to lose billions of dollars in 2022,” said Dr. Therese Fitzpatrick, senior vice president at KaufmanHall, during a news conference.
“It will be the worst year since the start of the pandemic.”
The report, released Thursday, found that health care profit margins have fallen sharply since 2019, the last year before the pandemic, and show little sign of recovery.
In the first half of 2022, margins fell 102 percent from pre-pandemic levels, meaning hospitals were starting to lose money on care provided.
The numbers aren’t too bad at this point, with average projections showing a 37 percent drop in margins for the full year.
However, in the worst case, margins will decline 133 percent for the full year. This means hospitals will lose a third of the money they spend on care in the US.
“It doesn’t take a mathematician to know that we’re suffering, in fact we’re bleeding,” Peggy Abbot, executive director of Ouachita County Medical Center in Camden, Arkansas, told Fierce HealthCare.
During the first half of the year, 52 percent of US hospitals were operating in the red, Kauffman found. That number is expected to remain constant through the second half of the year, but the most pessimistic projections have it at 68 percent.
The primary source of these financial problems is rapidly rising labor costs. The Kauffman report finds that hospitals are spending $86 billion more on staff in 2022 than they did in 2021.
Nearly $30 billion of that figure is in contract labor. These temporary staff members are often hired to cover shortages when they arise. However, they cost significantly more per head.
During Covid, many healthcare workers abandoned their full-time roles to seek more lucrative contract roles.
As a result of the departure of full-time staff, many hospitals were forced to spend even more on contract labor.
One of the biggest victims of this phenomenon was MGH. The iconic American hospital posted a loss of almost a billion dollars between April and June 2022.
The hospital blamed rising staffing costs and shortages in many positions for driving up its costs and eating into its profit margins.
“Since these challenges are unlikely to abate any time soon, we must continue and even accelerate our efforts to improve efficiency, deliver care in the most appropriate and convenient settings, and integrate payer and provider capabilities to improve affordability for people and employers. Niyum Gandhi, financial director of the hospital, in a press release.
The AHA warns that smaller rural hospitals will bear the brunt of these rising costs and cut margins.
Even before Covid, many people living in rural areas have faced transportation barriers to receiving care so many hours away from the nearest full-service hospital. Even transportation to an emergency room or urgent care could take long periods of time.
The remaining rural hospitals are less likely to have the cash to spend than a major institution like MGH, and could be forced to close as a result of these negative margins.
This would extend already long transportation times for care and likely lead to preventable deaths, the AHA warns.