Hospital margins have steadily improved in recent months as patient volumes rebounded but inflation and high labor costs continue to eat into hospital and health systems' bottom lines.
Last year was "the worst operating year we've ever seen" in the hospital sector, with 2023 appearing to be a "make-or-break year" for many, Fitch Ratings Senior Director Kevin Holloran said during an April 5 presentation, according to Bloomberg.
In 2022, Becker's reported on 52 hospitals and health systems that trimmed their workforces due to financial and operational challenges. Those cuts represented more than 3,977 laid off workers and 4,686 eliminated positions.
Unfortunately, layoffs and job cuts have shown no signs of slowing down this year. In the last 10 months, Becker's has reported on layoffs at 61 hospitals and health systems. Large systems that recently implemented layoffs include New Orleans-based Ochsner Health, Tacoma, Wash.-based Virginia Mason Franciscan Health and Vancouver, Wash.-based PeaceHealth.
While margins have improved slightly this year, many systems are still operating in the red or marginally above zero. Staff shortages and the higher cost of goods and capital are likely to continue to challenge hospital finances for the foreseeable future. And while the need for high-cost travel nurses has declined, basic wages have increased and inflation remains at elevated levels.
In addition to layoffs, many hospitals have looked to offset operating losses and address staffing shortages by cutting services or closing departments altogether, dredging up further concerns for patients' access to care. Maternity care is a particular area of concern especially for rural hospitals.
"Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action," Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a May 31 report. "In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial."
Many for-profit health systems remain on solid financial ground — Dallas-based Tenet Healthcare ended the first quarter with a 12 percent operating margin and Nashville, Tenn.-based HCA recorded a 9.9 percent margin. Tenet posted $5 billion in revenue, compared with HCA's $15.6 billion.
However, most nonprofit systems fall on the opposite end of the spectrum. In the first quarter, St. Louis-based Ascension reported an operating loss of $1.4 billion on $6.9 billion in revenue, while Chicago-based CommonSpirit posted a $658 million operating loss on revenues of $8.3 billion.
"Where we are is not sustainable and waiting for a reversion is a rapidly decaying option," Eric Jordahl, Kaufman Hall's managing director of treasury and capital markets, wrote in a May 13 commentary. "The journey of transforming operations is going to require very careful planning about how to size, position and deploy liquidity, leverage and investments."
All eyes are on second-quarter financial reports, which will provide more insight into health system recoveries. However, recent financial data and news reports indicate that hospitals and health systems are not out of the woods yet, and more layoffs and service reductions may be on the horizon as they continue to fight their way back to better financial footings.