A new Arizona Hospital and Healthcare Association (AzHHA) hospital financial analysis reveals that hospital net operating margins decreased from an average of 4.6% in 2021 to 0.5% in the first quarter of 2022, and then decreased to -8.7% in the second quarter of 2022.
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Last week, AzHHA released its Quarterly Financial Analysis analyzing first and second quarter financial data from 2022 compared to data from the previous year among 21 member hospitals.
The graph below shows the net operating margins of these 21 hospitals from the first quarter of 2021 to the second quarter of 2022.
According to AzHHA, these losses come as a result of “extraordinary inflation in the labor and supply market.” Contract labor costs increased 170% in the first quarter of 2022 and 231% in the second quarter, compared to the same periods in 2021.
AzHHA hospitals also report a 13% increase in the cost of drugs, an 8% increase in the cost of medical supplies, and a 7% increase in the cost of salaries and wages in 2022.
Ann-Marie Alameddin, President and CEO of AzHHA, told State of Reform that these financial losses can also be attributed to lingering impacts of the pandemic.
“Delayed patient care during the pandemic has also resulted in longer lengths of stay in the hospital—sicker patients require more complex care,” she said. “Because Medicare, Medicaid, and private health plans reimburse on a case-rate basis, reimbursement for these increased lengths of stay does not reflect the actual cost of care. We are also seeing discharge delays due to payor delays in authorizing post-acute care treatment as well as workforce challenges in nursing homes. When health plans don’t pay these costs, hospitals experience a financial loss.”
AzHHA notes that all CFOs among their hospitals listed staffing shortages and increased staffing costs as their number one financial issue.
Alameddin emphasized that the challenges hospitals are facing are occurring across the nation, so the problem should be addressed using a national strategy.
“We believe addressing this situation will take a comprehensive approach with a focus on payers—both government and commercial payers,” she said. “Reimbursement has not caught up with the rate of inflation. Hospitals must be reimbursed for the care they provide at today’s prices, not what was in negotiated contracts before the pandemic.”
She added that, as Arizona’s 2023 legislative session begins, the legislature should avoid compounding an already challenging situation by refusing to consider any cuts to health care funding. She applied the same sentiment to proposed federal spending cuts.
“The federal government must also consider the impact of the planned cuts to provider reimbursement via Medicare sequestration. These planned cuts will make a troubling financial situation worse.”