Kaufman Hall Report Says Hospitals Saw Less Inpatients and Outpatients during Summer as Bad Debt and Charity Care Rose

As a result, health system-based clinical laboratories likely saw a decline in test orders as well a decrease in outreach revenue

Bad financial news continues in the hospital industry. According to an August 2023 National Hospital Flash Report from consulting firm Kaufman Hall, hospitals’ financial performance deteriorated in July, partly due to declines in inpatient and outpatient volumes and rising bad debt and charity care.

The implication from these findings is that hospital-based clinical laboratories saw a drop in test volume and any lab revenue associated with inpatient testing.

In an analysis of data from more than 1,300 hospitals, Kaufman Hall noted a dip in hospitals’ median calendar year-to-date operating margin from 1.4% in June down to 1.3% in July. The data also showed “a greater pullback in volume on the outpatient side, which may be attributed to patients choosing not to pursue elective procedures during the summer,” a Kaufman Hall news release stated.

Kaufman Hall’s National Hospital Flash Report by Erik Swanson, Senior Vice President, Data and Analytics, and Brian Pisarsky, Senior Vice President, Strategic and Financial Planning, is an analysis of actual and budget data—sampled from Syntellis Performance Solutions—which is representative of hospitals of various sizes and areas in the US.

“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,” said Erik Swanson, Senior Vice President, Data and Analytics, Kaufman Hall, in a news release. Clinical laboratory leaders would be wise to follow the same advice. (Photo copyright: Kaufman Hall.)

Expenses Declined, Bad Debt and Charity Care Rose

Here are other national data Kaufman Hall reported for July 2023 as compared to June 2023:

  • Adjusted discharges per calendar day dropped 7%.
  • Operating room minutes per calendar day declined 13%.
  • Emergency department visits per calendar day fell 1%.
  • Bad debt and charity care as a percentage of hospitals’ gross operating revenue was up 7%.
  • Purchased service expense per adjusted discharge was down 3%.
  • Labor expense per adjusted discharge also fell 3%.

Even though expenses slightly declined during July, patient volume decreases “pulled down” the margins, Healthcare Innovation reported, which called the report “a gloomy one.”

Also, the uptick in bad debt and charity care while volumes decreased created a “difficult situation for hospitals,” Medical Economics observed. 

Here are the report’s “key takeaways,” according to Kaufman Hall:

  • All volume indicators were down, but operating margins were still better than 2022.
  • Outpatient volume decreased more than inpatient, possibly due to patients choosing not to have elective procedures during the summer.
  • The decline in expenses was “not enough to offset revenue losses,” and inflation will continue to take its toll on labor expenses.
  • Medicaid has been “disenrolling” members in 30 states during June and July, and bad debt and charity care have increased.  

The report also called out need for improvement in providers’ discharge of patients to skilled nursing facilities. “Hospitals that prioritize care transitions to skilled nursing facilities are performing better than institutions [that] do not,” Swanson said in the news release.

“Identifying steps that can ensure a smooth transition, such as obtaining pre-authorizations and planning discharge early, will help organizations reduce expenses and improve patients’ experience,” he continued.

For Hospitals, 2023 Not as Bad as 2022

MedCity News pointed out that though July’s operating margin index decline followed four months of growth, hospitals are still way ahead of 2022 performance when median operating margins were -0.98% in July 2022.

Still, it appears hospitals are struggling to secure financial footing after 2022, an overall bad financial year for the hospital industry.

In “Tough Times Ahead for Hospitals and Their Labs,” Dark Daily’s sister publication The Dark Report referenced a Fall 2022 Current State of Hospital Finances Report, prepared by Kaufman Hall for the American Hospital Association. The report noted that “under an optimistic scenario, hospitals would lose $53 billion in revenue [in 2022]. The loss would primarily come from a $27 billion decline in outpatient revenue and $17 billion for inpatient as well as $9 billion in emergency department revenue.”

More recently, a 2023 Becker’s Hospital CFO Report compiled a list of 81 hospitals that had cut jobs since the start of the year in response to “financial and operational challenges.”

Included was Tufts Medicine in Burlington, Massachusetts. In August, the hospital “eliminated hundreds of jobs” in an outsourcing of lab outreach services to Labcorp. The Becker’s report noted that “[Tufts] said it will work with Labcorp to have the majority of affected employees transition to a similar position with Labcorp.”

Tips for Clinical Lab Financial Viability

Medical laboratory leaders need to help ensure financial health of their labs as well as quality and efficiency of services. Advice from Kaufman Hall may be applicable.

The report writers advised providers to secure payer authorizations before a “patient comes in the door.” For clinical labs, this is comparable to the need to secure insurance company authorizations for expensive genetic tests before samples are taken and tests performed.

Another tip from Kaufman Hall is to “collect and use data to inform process improvement” and “make change.”  Along those lines, medical laboratories could leverage patient data to guide launch of new services, entry to markets, workflow improvement, and costs reduction.

—Donna Marie Pocius

Related Information:

National Hospital Flash Report: August 2023

Patient Volume and Revenue Decline in July, Challenging Hospitals’ Performance

Kaufman Hall: Hospital Margins Dented by Falling Patient Volume

Hospital Finances Decline in July

Hospitals’ Operating Margins Fell in July after Four Months of Growth

Clinical Laboratory Trends: Tough Times Ahead for Hospitals and Their Labs81 Hospitals, Health Systems Cutting Jobs

Medicare Targets Avoidable Hospital Readmissions to Jumpstart Delivery Reform

Bundled Payment Demonstration Project Changes How Labs Would Be Paid

Efforts in the nation’s capital to reform healthcare are still in the formative stage as the new President and the new Congress consider various approaches. Meanwhile, the Centers for Medicare & Medicaid Services (CMS) started the new year by launching pilots for a bundled-service payment scheme. Not only may this be the beginning of the end of the fee-for-service payment system, but it has important implications for clinical laboratories and anatomic pathology groups.

The bundled payment system demonstration projects are a first step to what’s coming next. The Medicare Payment Advisory Commission, better known as MedPAC , released its blueprint for reforming the delivery system to Congress on March 17 in its annual Report to the Congress: Medicare Payment Policy.

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