The COVID-19 pandemic caused unprecedented financial and emotional strain in hospitals and health care facilities nationwide. In Indiana, hospitals experienced their most difficult financial year since before the pandemic last year, according to a new analysis by Kaufman Hall. Record-high hospital expenses coupled with losses in operating income left Indiana hospitals with cumulative negative margins in 2022.
According to Kaufman Hall, Indiana hospitals' median operating margin declined 22% last year compared to pre-pandemic levels. Expenses for labor, medical supplies, drugs, and other purchased services rose $3.2 billion during this time due to inflation and other external factors, outpacing revenue. The median hospital operating margin for the state of Indiana was at or below the national median each year, the report found.
Erik Swanson, Senior Vice President of Data and Analytics at Kaufman Hall, and hospital leaders across the state spoke to statewide media about the impact on access to care.
“These findings underscore the existential financial and operational threats Indiana hospitals continue to face in the years following the initial outbreak of COVID-19," Swanson said.
High expenses combined with a shifting payer mix led Beacon Health System to see its first-ever loss in 2022, CEO Kreg Gruber. Total losses for Beacon totaled $14 million last year.
Similarly, Woodlawn Hospital in Rochester experienced an operational loss of $6.3 million last year, CEO Alan Fisher said. “Our goal for 2023 is to lose just $1.5 million, even after implementing more than $3 million in cost reductions."
Combined, Indiana hospitals experienced negative operating income for the first time since the beginning of the pandemic in 2022, losing $72 million. In addition, total operating income for Indiana hospitals fell $1.2 billion below pre-pandemic levels.
Methodist Hospitals in Gary and Merrillville saw an operating margin loss of 4.6% last year, CFO Lauren Trumbo said. “This is unsustainable, and we have concerns for 2023."
According to the report, Indiana hospitals also saw significant declines in days cash on hand—a key measure of cash reserves. In 2022 alone, Indiana hospitals experienced a nearly 20% median decline in their number of days cash on hand compared to 2021.
Hospitals faced a host of other related challenges in 2022, according to the report, including workforce shortages and increased labor costs. Hospital efforts to attract and retain critical staff resulted in a nearly $2 billion increase in labor costs compared to pre-pandemic levels. Salary increases for health care workers accounted for 96% of those costs.
In addition, cyber-attacks, which are becoming more common for hospitals, can take an unexpected toll.
In early 2022, Norton Healthcare King's Daughters' CEO and IHA Chair Carol Dozier was hoping the hospital would be able to recover. Then, the hospital was hit with a cyber-attack.
“We had to spend time and money bringing our electronic health records back online, and some services had to be postponed as the attack affected equipment," said Dozier. “I would say it's impacted everything. We are still recovering."
Brian Tabor, president of IHA, urged lawmakers to enact laws that would aid rather than hinder hospitals.
“Indiana hospitals are facing unprecedented financial strain, but we remain committed to providing accessible, high-quality care to Hoosiers," said IHA President Brian Tabor. “We must make sure our hospitals and the thousands of caregivers who sustain them have the resources they need to rebuild and remain viable in communities across the state."