While federal assistance during the COVID-19 pandemic insulated many hospital systems from financial peril, they will likely have trouble attaining the same operating margins when relief efforts end.
Coronavirus aid helped hospital systems’ 2021 operating margins reach pre-pandemic levels, according to Richard Ciccarone, president of the financial information firm Merritt Research Services.
With relief programs in full effect in 2021, “the largest hospital systems were able to leverage the aid to restore their group median level to 3.2%, on par with 2019,” he said.
Without the federal support, Merritt Research estimates that only the group of large systems would have had a slight increase in median operating revenue in 2021.
“The operating margins for many medium and small systems would have likely fallen into the red in 2021,” Ciccarone said.
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And as government support ends, higher labor costs will put pressure on 2022 margins, Ciccarone said.
Small systems are likely to be hit hardest, but even the largest systems will be affected, he said.
“A sample of first-quarter 2022 operating results appears to support lower expectations for all hospital systems for the full year,” he said.