Nearly 60 percent of hospitals in Tennessee operated at a financial loss in 2022, with the average operating margin across the state at -2.9 percent, according to a recent report commissioned by the Tennessee Hospital Association (THA) and produced by management consulting firm Kaufman Hall. Overall, margins were down 68 percent from pre-pandemic levels. The report points to rising costs – especially skyrocketing labor costs – combined with disruptions to patient care and increased length of stay averages as the primary drivers. The report shows cost increases of more than $3.2 billion since 2019.
“This new analysis brings the negative financial impact of the pandemic on Tennessee hospitals and health systems into focus and makes clear the urgent need for action,” said Dr. Wendy Long, THA President and CEO. “Given the unique role hospitals play in the healthcare system – operating 24 hours a day, seven days a week, 365 days a year and treating all comers, regardless of their ability to pay – many traditionally operate on low margins and are vulnerable to shocks in the marketplace. The pandemic exacerbated existing workforce shortages and sent labor costs soaring, while reimbursement from government and commercial payers has not kept up with the increased cost of care.”
Hospital risk of closure is the highest since the start of the pandemic with Kaufman Hall reporting 45 percent of Tennessee hospitals having unsustainable financial metrics, putting them at an increased risk of closure, up from 23 percent of hospitals in 2019.
“This risk does not reflect imminent closure but highlights risk due to unsustainability of operations,” said Erik Swanson, senior vice president of Data and Analytics for Kaufman Hall. “The vast majority of hospitals at risk of closure in Tennessee are rural hospitals, though urban hospitals have also been stressed and are at a higher risk than pre-pandemic levels. Federal and state relief during the pandemic was vital to hospitals, but it was short-term and masked what are now longer-term issues of sustainability.”
Many hospitals across the country are experiencing similar financial difficulties; however, the report shows Tennessee hospital margins are below national averages. In 2022, the national average operating margin was 0.4 percent while the Tennessee hospital average was -2.9 percent.
“If not addressed, hospitals will have to make difficult decisions like no longer offering certain healthcare services or closing their doors permanently. Unfortunately, according to a recent survey of Tennessee hospitals, 57 percent of facilities reported that they have already begun reducing or eliminating services,” said Dr. Long.
Tennessee hospitals are essential for the health of our communities and have a $51.4 billion annual economic impact for our state. Hospitals must remain open, staffed, and fully operational to ensure essential care is available in their communities.
Key findings in the Kaufman Hall report:
- Tennessee hospitals experienced staggering losses in income through the pandemic, including $500 million in lost income in 2022.
- Total expenses in 2022 were $3.2 billion higher than pre-pandemic levels.
- Last year turned out to be one of the worst years financially for hospitals, with operating margins dropping 68% compared to pre-pandemic figures.
- Post-acute sites of care face similar if not more staggering impact due to significant labor shortages and declining revenues, with operating margins dropping 51% compared to 2019.