Hospital finances worsened in July as volumes dropped, according to a new Kaufman Hall report. 

Following four months of growth, hospitals’ median year-to-date operating margin index fell 1.3%, down from 1.4% in June. Hospital finances still remained in a better place than they were last year, given hospitals’ median operating margins were -0.98% in July 2022.

For the report, Kaufman Hall examined data from more than 1,300 hospitals. Nationally, discharges per day dropped by 4% in July compared to the month prior, and operating room minutes per day decreased by 13%.

Outpatient volumes fell slightly more than inpatient — some of the reason for this could be that fewer patients seek elective procedures during the summer months, the report pointed out.

One piece of marginally good news was that hospitals’ expenses decreased by 3% in July. Labor costs continue to make up the biggest share of hospital expenses, but labor costs per day went down 3% nationally. This brings labor costs back to the level they were in July 2022, but they’re still 26% higher than they were in July 2020.

Additionally, bad debt and charity care as a percentage of hospitals’ gross operating revenue increased by 7% from June to July. Some of this has to do with Medicaid eligibility redetermination, which continues to impact patients and hospitals. More than 30 states began disenrolling people during the summer.

This tough financial situation among hospitals has forced many to prioritize care transition as a way to stay profitable, the report said.

Kaufman Hall’s analysts recommended that hospitals obtain the required pre-certifications and payer authorizations before the patient enters their doors, as well as create a provisional discharge plan as soon as they are admitted. Hospitals should also form relationships with post-acute care settings so patients have a clear pathway to care after their discharge, they said.

The report also recommended that hospitals gather data on patients’ lengths of stay and use it to inform process improvement.

“It’s clear that today’s challenging financial environment is here to stay, and hospital leaders must be proactive in seeking out opportunities to refine their operations and remain competitive,” Erik Swanson, Kaufman Hall’s senior vice president of data and analytics, said in a statement. “Collecting good data and feedback is essential for making timely, evidence-based process improvements.”

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