Hospital Financial Challenges Persist during 2023

March 09, 2023

The nation’s hospitals and health systems continue to navigate a challenging financial environment, with operating margins lagging behind pre-pandemic levels and expenses remaining elevated.

A new report from Fitch Ratings reviews data from hospitals with a mid-year fiscal year end and notes that the decline in operating results could be even more pronounced for hospitals with a later fiscal year end. Those facilities “bore the full brunt of intensifying financial pressures in 2022,” Fitch reported.

“Audited results show materially weaker profitability and liquidity relative to FY (fiscal year) 2021 due to expense increases and investment market losses,” the report notes.

Among the key takeaways:

• Margins:  On the whole, the median margin for hospitals eroded to barely breakeven levels (0.9%) and remain far below FY 2021 (3.8%).
• Inflationary pressures:  Labor expenses and “generationally elevated inflation” contributed to median year-over-year increases for salaries, wages, fees, and benefits (11.1 percent) and other expenses (7.4%).
• Operational challenges:  Staffing shortages have created capacity constraints for hospitals. The shortage of nursing beds also has increased challenges discharging patients.
• Strategies, trends:  Fitch projects a continued focus on outpatient and technology investments to drive cost-efficient growth.
• Quotable:  “Nevertheless, margins are not expected to return to pre-pandemic levels for quite some time,” the report notes.

HAP continues to highlight hospitals’ financial strain while advocating for additional resources and support to ensure they can remain anchors within their communities.

The Fitch Ratings report is available to review online.