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U.S. hospitals and health systems are experiencing some of the worst margins since the beginning of the pandemic and 2022 is on track to be the worst year of the pandemic in terms of financial performance, according to a new report based on data from more than 900 U.S. hospitals.

The Kaufman Hall National Hospital Flash Report for August 2022 found that the gains hospitals had been seeing earlier reversed themselves in July, as lagging outpatient volumes shrunk revenues and expenses rose from June. Hospitals can no longer count on supplemental federal funding to buffer these mounting losses, as they did in earlier pandemic years.

The situation is so dire that on Aug. 16, Fitch Ratings revised its sector outlook for U.S. not-for-profit hospitals and health systems to “deteriorating,” Kaufman Hall pointed out.

The report said an increasing number of patients continued to choose ambulatory centers over hospital settings for surgical procedures in July, a sign of a larger shift to ambulatory care and new ways of accessing care outside of the hospital. As outpatient activity and revenue sank, labor expenses, which have remained well above pre-pandemic levels throughout 2022, rose, the report said.

Inflation and labor shortages contributed to total costs climbing 9.6% YTD. Sicker patients stayed in the hospital longer, also driving up expenses, the report found.

The median Kaufman Hall Year-To-Date (YTD) Operating Margin Index reflecting actual margins was -0.98% through July, underscoring the continued losses hospitals have experienced this year.