Supply chain issues and pandemic-induced labor shortages have led to increases in hourly wages that have sent hospital operating margins down, along with higher expenses in healthcare.

Margins were down 15% compared to October 2020, according to the November edition of Syntellis Performance Trends. The main cause is an uptake in hourly wages in healthcare facilities dealing with labor shortages and facing tighter competition to fill positions as workers resign due to pandemic-related burnout and a desire to seek out other career opportunities.

Demand was greatest among respiratory therapists, who saw their hourly rates soar 11.5% this October compared to October 2019. This was more than triple the 3.7% rise in hourly rates for physical therapists over the same time span, with the cause attributed to the rising number of patients with short- and long-term respiratory effects brought on by COVID-19. Additionally, registered nurses across departments saw increases of 8% to 8.7%.

“Retaining and recruiting top talent is more than paying higher wages. Healthcare organizations need to put an emphasis on rewarding and recognizing top performers in ways that are meaningful, including creating a safe environment. Engaging top performers to solve the issues we face today will have a long-term impact in redesigning the care model for the future,” said Tonia Breckenridge, managing director at Huron, a global consultancy firm, in a statement.

Higher expenses are partially due to the rise in medical supply costs. While steadily increasing since the pandemic first broke, recent months have seen higher than regular uptakes, especially in respiratory care. Here, medical supply expense per unit of service increased almost 56% from October 2019. In contrast, the rate of growth for inpatient volumes has waned in the last few months. While patient days rose 11.4% YOY in September, they only rose in October by 6% YOY compared to both October 2020 and October 2019. Adjusted discharges were flat YOY.

Staff FTEs per 10,000 wRVUs, meanwhile, fell 7.6% from 2020 levels but were down by just 1.4% from 2019. This indicates that factors other than staffing levels are contributing to rising physician expenses.

Despite the overall drop in operating margins, gross operating revenue was up 9.3% in October 2021 compared to October 2020 and 7.6% compared to October 2019. Inpatient revenues rose 10.2% YOY and 11.8% compared to 2019. Outpatient revenue was up 8.6% and 5.8%, respectively.

But Steve Wasson, EVP and general manager of data and intelligence solutions at Syntellis, says these current trends are not sustainable for the nation’s hospitals, health systems and physician groups, due to new variants and another potential surge. "These findings and trends suggest that organizations are likely to encounter challenges with expenses, both labor and supplies in the coming months, putting pressure on margins and profitability. This could limit organizations from other types of needed investments," he told HCB News.

He adds that healthcare leaders should find creative ways to recruit employees without necessarily increasing salaries, evaluate their supply relationships to cut out unnecessary costs, and grow revenue to outpace increasing expenses.

Despite pressures from treating high levels of serious COVID-19 cases dropping, Kaufman Hall also reported a second consecutive month of margin declines in October as increasing labor expenses weighed down overall hospital performance, according to its National Hospital Flash Report in November. It added that the emergence of the new Omicron variant and the rise in COVID-19 hospitalizations in recent weeks add to these challenges and make the future impact on hospitals uncertain.

Syntellis analyzed data from more than 1,000 hospitals and 135,000 physicians, from over 10,000 practices and 139 specialty categories.

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