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Gloomy month-over-month report points to higher salaries prompted by nationwide labor shortages. Hospitals hit by the recent Delta surge in the West, South and Midwest experienced the largest year-over-year margin declines for the month.

For the second consecutive month of margin declines, the median change in operating margin was down 12.1% from September to October, not including CARES Act funding. Year-over-year, operating margin medians sunk 31.5% compared to pre-pandemic levels in October 2019. Actual hospital operating margins were relatively steady for the fourth consecutive month, with October’s median Kaufman Hall Operating Margin Index at 3.2%.

Non-Labor Expense Decline isn’t Stemming the Tide

Although non-labor expenses declined month-over-month for supplies, drugs and purchased services, most measures of expenses continued their ascent. Total labor expense rose 2.7% from September to October—12.6% compared to October 2020 and 14.8% compared to October 2019. However, decreases in full-time equivalents per adjusted occupied bed for these same years suggest that higher salaries prompted by nationwide labor shortages are driving up labor expenses—not increased staffing levels.

Inpatient Revenue Down, Outpatient Revenue Rising from 2019-20

Continued softening of inpatient volumes during the month followed steep increases from the recent COVID-19 surge. Patient days decreased 0.5% compared to September and average length of stay (LOS) declined 1.5% following three months of increases. These declines led to a 0.9% month-over-month decrease in inpatient revenue, which in turn brought gross operating revenue (not including CARES Act funding) down slightly at 0.1%. However, year-to-date and year-over-year gross operating revenue and both inpatient and outpatient revenues continued to increase compared to 2019 and 2020 for an eighth consecutive month.

Outpatient revenue was up across all measures, rising 1.2% from September and 8.6% compared to October 2020. This suggests that recent pandemic trends have not significantly deterred healthcare consumers from seeking outpatient care.

Perfect Storm: Labor Shortages Fueled by Pandemic Burnout + High Cost of Temporary Staff

Labor shortages and supply chain challenges are rising threats to profit margins for healthcare and pharmaceutical companies. Multiple factors are contributing to labor pressures, including staff burnout caused by the pandemic, a shortage of qualified help, higher costs to hire temporary staff, and wage inflation.

Moody’s October Healthcare Quarterly report also found that a shortage of nurses and other workers will continue to erode hospital financial performance into 2022. Washington State healthcare workers have called on hospitals to mitigate the staffing crisis, with the union arguing there are a number of policies hospital administrators could immediately enact that would help alleviate some of the issues.

Vaccine mandates for healthcare workers are also having an effect on the staffing shortage. For example, the state of Washington lost 2% of its healthcare workforce since mandating that all hospital and nursing home staff members receive COVID-19 vaccines.

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