Labor Shortage, Not Covid, Dogs Hospital Comeback To Pre-Pandemic Days

Hospitals on average aren’t performing as well financially as they were before the pandemic, thanks to the ongoing labor shortage and higher related costs of healthcare staffing.

New financial reports on the nation’s hospitals indicate these healthcare facilities need additional healthcare workers, and nurses in particular, as staffing issues keep pressure on hospital and health system profit margins.

As one example, a new report out Wednesday from Fitch Ratings shows median days cash on hand tumbled 44 days to 216 in 2022 compared to 260 in 2021, according to the ratings firm’s sampling of more than 200 nonprofit hospitals and healthcare systems.

In addition, median operating margins also fell to less than one percent to 0.2 percent in 2022 from 3% in 2021, according to Fitch. Operating margins before the pandemic were generally between 2% and 4% between 2013 and 2019, Fitch data shows.

“What dominates now is the sectors’ need for significant additional staffing, particularly nursing, which emerged as a critical weakness in the sector, resulting in massively increased staffing expenditures (employed and contracted) as the new norm for much of the sector,” Fitch said in its report. “Labor shortages, both clinical and non-clinical, will continue through 2023, and likely longer in many markets, with high-growth markets generally better able to mitigate staffing shortages.”

Fitch described 2022 as the “worst operational year on record for many providers” even compared to the “Great Recession” of 2008-2009.

It remains unclear whether this year will be a comeback for the hospital sector as some have suggested.

A May report from healthcare consulting firm Kaufman Hall showed hospital finances “broke even in April amid a continuing trend of high expenses and the unwinding of the Medicaid continuous coverage requirement of the Covid-19 public health emergency.” Prior to April, Kaufman Hall’s monthly flash report had hospital monthly operating margins in the red dating back more than a year ago.

Fitch, too, sees the majority of the hospitals and health systems it rates to return to “break-even” yet this year.

“Longer-term industry dynamics continue to suggest protracted margin compression compared to historical trends as additional expenses, primarily labor, remain elevated,” says Kevin Halloran, senior director, U.S. Public Finance Healthcare at Fitch Ratings.

“We continue to expect a return to monthly break-even in 2023 for the majority of the rated portfolio, albeit at a slower pace than anticipated heading into the year,” Halloran said. “While we believe 2023 financial results will be better than those of 2022, this will not represent a full rebound, given the tremendous ongoing pressures on many credits in the sector.”