Guest Commentary: Hospitals financial challenges continue in pandemic’s wake
Megan McNamara Williams is the interim CEO of the Delaware Healthcare Association.
Delaware’s nonprofit hospitals and health systems deliver high-quality care, contribute significant economic benefit, provide community benefit support and serve as a critical safety net to those in our state. They led the way in the fight against COVID-19 but are now facing significant challenges in the wake of the pandemic: Patient acuity is high, expenses are high, and hospital margins are at an all-time low. Still, Delaware hospitals remain committed to serving our communities and the future health care needs of our state.
Patient acuity is high
Patients now entering our hospitals are sicker because treatments were deferred during the height of the pandemic. The national average patient length of stay was up nearly 10% between 2019 and 2021. Like the rest of the nation, medical/surgical length of stay in Delaware has increased from 5.05 days in 2019 to 6.59 days in 2021 — a 30.8% increase. Sicker patients translate to increased costs, as these patients require more intensive treatments and medications, increased staff time and more supplies and equipment.
Exacerbating this challenge for Delaware is our high percentage (18.2%) of the population over age 65, ranking us the fifth-oldest state in the nation. Health care spending for someone who is 65 and older is almost three times as much as someone who is working age. Compounding this is the high prevalence of certain costly diseases and conditions in our state, including high rates of obesity (ranking No. 7 nationally) and adult diabetes (ranking No. 11 nationally).
Hospital expenses are high, and margins are low
Since the start of the COVID-19 pandemic, hospitals have faced historic volume and revenue losses, as well as skyrocketing expenses.
Financial losses were also incurred due to paused elective surgeries and procedures during COVID-19 surges. A Delaware Healthcare Association survey found that Delaware hospitals’ operating margins statewide were -3.8% in 2020; even with federal assistance, Delaware hospitals barely broke even.
COVID-19 has taken a toll on an already strained health care workforce. Labor expenses are at an all-time high, and hospital employment is down. Nationally, hospital labor expenses per adjusted discharge were up by 24.8% by the end of 2022, compared to pre-pandemic levels in 2019. With labor costs accounting for approximately half of hospitals’ total expenses, recent increases in labor costs are having negative impacts on operating margins. Medical supply expenses have increased 20.6%, and drug costs have increased 36.9% on a per-patient basis since the pandemic began.
These rising expenses, coupled with high inflation, are leading to billions in losses, and over 33% of hospitals are now operating on negative margins. According to a report from Kaufman Hall, 2022 was the worst financial year for hospitals and health systems since the start of the pandemic. Most recently, hospital operating margins dipped in February 2023 to -1.1% and continue to remain negative.
This outlook is echoed by credit rating agencies. Indeed, in its mid-year 2022 outlook for nonprofit hospitals, Fitch Ratings labeled the outlook for the sector as “deteriorating” and stated that it “expects that sector conditions will remain challenged for the remainder of 2022, as labor pressures and generationally elevated inflation compress margins for most providers.”
Focus on the health of our communities continues
Regardless of the challenges, Delaware hospitals and health systems continue to make significant investments in the health and well-being of all Delawareans.
In 2020, the most recent reporting year, Delaware hospitals contributed nearly $978 million statewide in community benefit spending. Delaware hospitals also provide significant economic contributions to the state, employing 22,797 people, supporting more than 47,978 jobs and adding $6.93 billion to the state economy through economic output.
Supporting our communities and working toward a brighter, healthier future will continue to be a priority for Delaware’s hospitals, despite ongoing challenges.
