Over the summer, the country’s hospitals — struggling to get back on their feet following the crippling revenue losses from the COVID-19 pandemic, skyrocketing inflation, and stagnant government funding — suffered yet another setback. According to the August “National Hospital Flash Report” from national health care consulting firm Kaufman Hall, operating margins dipped in July to a meager 1.3% (for comparison, insurance companies were above 15% in 2023).
This comes after several months of straining to climb out of a deep financial hole, as hospitals were in negative territory throughout 2022 and barely above break-even for the first half of this year. The term “operating margins” might sound more appropriate for a Hollywood drama about Wall Street, but for hospitals, margins are the means by which they invest in their workforce, make improvements to their facilities, expand specialty services for patients, and so much more.
One major reason for the decline — and one that is likely to get even worse as time goes on — is a jump in uncompensated care. These types of losses increased by 7% between June and July, likely in part due to reductions in Medi-Cal rolls resulting from the end of the COVID-19 public health emergency. Based on state projections, as many as 3 million Californians could lose Medi-Cal coverage as a result of this change.
As the Kaufman Hall report suggests — even with the dip in margins in July — health care may be settling into a “new normal” (for example, labor costs are at a similar level as this time last year, though that is a whopping 26% higher than in 2020). The concern going forward is that this “new normal” carries frightening implications for care.
A hospital’s operating margin is an indicator of its ability to preserve and enhance access to care. The larger the margin, the more enhancements possible: things like investments in behavioral health, innovations in clinical care, continued labor and delivery services, and expansion of specialty services. The flipside is also true: The smaller the margin, the greater risk of losing these vital services.
As we all recalibrate from the great reset that has been wrought by the pandemic, we must continue to keep a watchful eye on these reports that speak to the condition of hospitals, lest we end up with a health care system that is no longer able to meet the needs of all Californians.