A new financier analysis published by KaufmanHall, prepared at the request of the California Hospital Association, reveals that—but not as extreme as in 2020—2021 has been a year of significant financial stress for California hospitals. The analysis includes data representing 79 California hospitals.
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In the second year of the pandemic, California hospitals suffered financial losses of nearly $6 billion on a volume-adjusted basis, more than triple previous projections.
The figure below shows hospital losses incurred in 2020 and 2021 compared to 2019.
According to the analysis, California suffered cumulative losses of $12.1 billion in 2020 and 2021, including federal funding, and more than $20.2 billion excluding federal funding. The analysis attributes much of this loss to expenses growing faster than income. In 2021, total hospital spending in California increased by 15%, compared to a national average increase of 11% in total hospital spending.
California hospital profit margins in 2021 averaged 26% below pre-pandemic levels. The figure below shows a 2019-2021 comparison of profit margins for the California hospitals analyzed.
Before the pandemic, 50% of these hospitals had unsustainable profit margins (margins of 3% or less). In 2020, the percentage of hospitals with unsustainable profit margins increased to 69%, and in 2021, that number fell to 55%.
According to the analysis, this accelerated spending can also be attributed to the fact that California hospitals are treating fewer people in 2021 than in 2019. However, patients treated in 2021 often had more serious illnesses and stayed in hospital longer. .
“Fewer admissions and longer lengths of stay create additional financial pressures,” the analysis says. “Hospitals generally receive a set amount per admission, so organizations typically lose money if their stay requires longer care than expected.”
Adjusted discharges decreased by 7% and adjusted patient days increased by 4% in 2021, compared to pre-pandemic levels, with an overall increase of 11% in average length of stay.
Labor spending is also accelerating, largely due to labor shortages that have led to an increase in contract labor and increases in staff base pay rates. , as well as costs of recruiting and hiring new employees to alleviate shortages. The analysis notes that contract labor costs have nearly doubled since the start of the pandemic.
The analysis highlights that these financial difficulties are expected to continue through 2022, predicting that median profit margins are likely to remain below pre-pandemic levels throughout the year.