Why hospital margins are ‘one surge away from crisis’

Hospitals and healthcare systems are currently in a “critical situation” as their margins continue to shrink and more than half are expected to end 2022 with negative margins, according to a new report by Merchant Hall and the American Hospital Association (AHA).

Over 50% of hospitals will see negative margins this year

According to the report, this year’s hospital operating margins are expected to remain lower than before the pandemic. In the first six months of 2022, hospital margins fell 102% from pre-pandemic levels. At the low end, forecasts predict margins will fall 37% by the end of the year compared to pre-pandemic levels, but they could fall as much as 133% below pre-pandemic levels.

Overall, more than 50% of hospitals are expected to report negative margins this year, up from 36% in 2021. This increase in the percentage of hospitals with negative margins is also largely due to the omicron surge earlier in the year, as well as a lack of additional pandemic funding of the federal government.

Additionally, spending is expected to increase through the end of 2022, increasing by almost $135 billion compared to 2021.

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Labor costs, in particular, are expected to increase by $86 billion. Of the rising labor costs, salaried workers are expected to account for $57 billion and contract labor for $29 billion. Currently, the cost of contract labor remains high, nearly 500% above pre-pandemic levels.

Non-labor spending is also expected to increase by $49 billion in 2022, particularly on supplies, purchased services and medicines. In general, all non-labor cost categories are expected to be around 20% to 25% above pre-pandemic levels, with supplies and medicines seeing the largest increases.

At this time, hospitals are not expected to receive additional federal support, and potential fall and winter Covid-19 flare-ups could result in sicker patients, higher spending and more, which will put a significant strain on their resources.

“Most hospitals are just a leap away from crisis,” said Michael Slubowski, President and CEO of trinity health in Michigan.


According to Rick Pollack, AHA President and CEO, the American Rescue Plan made funds available to hospitals during the peak of the pandemic. But since then, “not a penny” has been given to combat the delta and omicron waves, which have severely impacted hospitals’ margins and restricted access to care for many patients.

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In an interview with 60 Minutes that aired Sunday, President Biden said “the pandemic is over,” which according to the Washington Post“may complicate his administration’s hitherto unsuccessful efforts to secure additional funding from Congress for more” pandemic-related assistance.

“The bottom line is that America’s hospitals are under severe financial pressure as they suffer from severe labor shortages, disrupted supply chains and rapid inflation that has pushed up the cost of care,” Pollack said. “These realities mean that access to services is at risk and this deserves the immediate attention of policymakers at all levels of government to ensure we are able to keep people healthy and also maintain essential public services, that our communities depend on.”

To ensure patients continue to have access to health care and hospitals across the country can remain financially stable, the AHA has asked Congress to prevent more Medicare cuts from taking effect next year and to expand state aid programs for rural hospitals. The organization has also called on Congress to make certain waivers permanent during critical pandemic times and to hold payers accountable for plans that delay access to care and increase the cost of care.

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Corresponding health guideThe report highlights the “critical situation” hospitals are currently in, and industry leaders are concerned about what this could mean for the future of the US healthcare system.

“The American healthcare system is one of the best in the world and we cannot let it fail us,” said Jack Lynch, President and CEO of health of the main. “We must continue to make changes on the supply side, which will be difficult in an environment where consumer expectations are higher than ever.”

“However, without the care provided to state beneficiaries and reasonable rate increases by commercial payers, the ability to ensure access to timely care in rural, suburban and urban communities will be at risk,” he continued. “In my 35 years in healthcare, this is the most fragile American healthcare system I have ever seen.” (Schiavo, health guide, 16.9.; Morse, Healthcare Financial News, 16.9.; Kaufman Hall/AHA report accessed September 19; Coalfish, AHA News16.9.)

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