Hospitals hard hit by pandemic costs

Alabama hospitals, over the last three years, have lost nearly $1.5 billion in income

Many Alabama hospitals are still reeling from the pandemic — from escalating expenses to less income and worker shortages — according to a report by KaufmanHall. According to the report, 2022 was the worst-performing year for Alabama hospitals since the pandemic.

Total expenses in 2022 for Alabama hospitals were nearly $2.6 billion higher than pre-pandemic levels, a 20% growth rate that has outpaced a 15% increase in revenue over the same period. The hospitals incurred $740 million in operating income losses in 2022, a 106% drop in income relative to 2019. Even with stimulus funds, total income loss for Alabama hospitals over the last three years amounts to $1.5 billion.

What this adds up to is 50% of Alabama hospitals having a negative operating margin in 2022. Compare that to pre-pandemic conditions, in 2019, 22% of Alabama hospitals were operating with negative margins.

Helping to skyrocket the costs hitting hospitals are rising labor costs, drug expenses and non-labor expenses.

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Alabama hospitals have spent 30% more on labor in 2022 than in 2019, due to both higher staffing and contract labor expenses. Wage and salary expenses in 2022 were more than $1 billion above 2019 levels. And while benefit expenses have not gone up as much, for 2022, they were $75 million more than pre-pandemic levels. Contract labor expenses comprised 24% of the labor increase for Alabama hospitals in 2022 relative to 2019 — roughly $324 million higher in 2022.

Medical supply expenses also have grown by 16% in 2021 relative to 2019 — a level that remained stable in 2022. Supply chain disruptions and increased personal protective equipment requirements are a contributing factor.

Drug expenses went up significantly in 2021, and while they have come down for 2022, they still remain 14% higher than they were in 2019 — a $61 million increase.

Hospital discharges, patient days, surgical cases and emergency department visits in Alabama were lower in 2022 than 2019. However, patient days decreased less than discharges, meaning an increase in the average length of stay for patients, which leads to higher expenses for the hospitals.

Alabama hospital income in 2022 relative to 2019 fell by $936 million, exclusive of stimulus funds. Without stimulus funds, Alabama hospital revenue grew only 13% in 2022 relative to 2019, while expenses grew 20%.

KaufmanHall used Syntellis Performance Solutions datasets to determine median values and year-over-year percent changes. The sample represents the full range of hospital types and sizes found in Alabama. As the figures for this report were pulled directly from internal accounting systems, KaufmanHall acknowledges that they may differ significantly from Medicare Cost Report data. The revenue and expenses for hospitals in this report are inclusive of all operating activities and often fund-flow between entities within a system.

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