Report: 2023 will be hard on hospital finances, but not as much as 2022

It’s shaping up to be yet another tough financial year for hospitals, though not as bad as last year, according to consulting firm Kaufman Hall’s February National Hospital Flash Report.

The report—published monthly using data from more than 900 hospitals—found that hospitals are performing better financially (so far) than they did in 2022, which was the worst financial year since the start of the pandemic.

“We’re starting to see operating margins fluctuate far less than they did over the last couple of years,” said Erik Swanson, SVP of Kaufman Hall’s data and analytics group. “Volumes are beginning to become a bit more consistent, although in many cases still below levels that they were several years ago.”

Covid-19 has played a big role in the uncertain hospital finance landscape. Hospitals reported a huge spike in Covid cases from the Omicron variant in January 2022, which meant hospital resources were strained from the outset of the year, said Swanson.

Still, hospitals are performing worse this year compared to 2020 and 2021, and operating margins in January 2023 were down slightly compared to the end of 2022, the Flash Report stated.

The major challenges hospitals face in 2023—lower patient volumes and higher expenses—are the same issues they’ve been dealing with, according to the report.

Compared to pre-pandemic levels, overall hospital expenses are up just shy of 20%, said Swanson. Inflation is partially responsible, but expenses are also rising due to increased use of more expensive contract labor and labor shortages that lead hospitals to offer higher wages to retain staff. Lower-wage jobs now also have to compete with Amazon, Walmart, and other companies that have raised wages, Swanson said. On top of that, “patients [are] coming in a bit sicker, and due to some of the labor shortages, are staying longer” because they delayed care during the pandemic, he added. Since they’re staying longer, they use more hospital goods and services. And since they’re sicker, they require more drugs—in many cases, more expensive specialty drugs, Swanson said.

Overall, 2023 could represent a “new normal” for hospitals post-pandemic, the Flash Report stated.

“This upcoming year will be yet another challenging year for hospitals, no doubt,” said Swanson. “It would appear, however, though, that this won’t be the worst year since the beginning of the pandemic.”