There are several factors denting hospitals' profitability in 2022, but the largest will continue to be high labor costs, according to a new report from Moody's Investors Service.
Since labor is the primary driver of health systems' expenses, Moody's said high labor costs and staffing shortages will be the biggest challenge to overcome.
The "shortage will increase competition for such workers, prompting health systems to pay higher wages, expand benefit packages and spend more on recruitment and retention efforts. As a result, higher labor costs will be the main constraint on margin growth for health systems in 2022," Moody's said.
Another challenge for health systems this year is the scheduled repayment of Medicare advances, which will cut into liquidity, according to Moody's.
"This U.S. government support contributed to record high levels of liquidity early in the pandemic, increasing days cash on hand by an estimated 30 to 40 days. As repayments are made, the impact on days cash on hand is likely to be similar, with most of the decline expected in calendar year 2022," Moody's said.
Moody's pointed to several other factors that pose credit risks to hospitals, including the shift of care to lower-cost settings, which will contribute to suppressed emergency department volumes, and drug-pricing proposals that could limit 340B savings to eligible hospitals.
Moody's also said the aging U.S. population will result in lower reimbursement rates as they shift from commercial insurance to Medicare.