Mitigating Staffing Challenges Impacting Hospital Profit Margins

A shortage of nurses and other workers will continue to weaken the financial performance of for-profit and not-for-profit hospitals in 2022, according to the latest Moody’s Healthcare Quarterly. “The sharp rise in COVID-19 cases in various regions of the US has contributed to a wave of nurses, often burned out, resigning to take care of family, work in less acute healthcare settings such as ambulatory care, or pursue higher-paying contract opportunities,” the report states. 

Staffing shortages are also impacting other clinical roles such as respiratory therapists and imaging technicians, as well as non-clinical jobs in dietary, housekeeping and environmental services. 

To combat these developments, hospitals are offering retention incentives, signing bonuses, and added benefits to nurses, while boosting minimum wages to better compete with other service sectors. However, because salaries and benefits represent more than half of hospitals’ total expenses, these developments are particularly impactful to bottom-line results.

2020 Median Expense by Category
According to not-for-profit healthcare medians data

Moody’s also cited ancillary impacts of staffing shortages, further exacerbating top-line and bottom-line financial performance challenges: 

• Fewer elective surgeries, resulting in less revenue from these higher-margin procedures.  
• Increased unionization momentum and added pressure in contract negotiations. 

The combined impact of these phenomena is clear: the median operating cash flow margins for not-for-profit hospitals fell to 7.0% in 2020 (from 8.3% in the three prior years). Furthermore, this trend is expected to continue in the coming year. 

Near-term Tactics for Mitigating Margin Pressures 

Implementing new profitable growth initiatives in health systems or hospitals, such as M&A activity, new business models, or selling intellectual property, can be highly complex endeavors with varying degrees of risk. Alternative tactics, such as floating nursing pools that build in greater workforce flexibility, are being utilized to begin alleviating some of these workforce challenges. 

Revenue cycle management (RCM) optimization is another strategy with proven results that should be explored. Specifically, EHR systems built for inpatient billing typically lack the necessary automation, business intelligence, financial reporting, payor connectivity, and error management capabilities necessary to handle the complexities of higher volume, lower-dollar outpatient and outreach procedures. Invariably, the cumulative result is millions of dollars of reimbursable claims being written off or misclassified under “contractual allowance” on an annual basis. XiFin data indicates healthcare leaders that do implement a more efficient purpose-built RCM solution for outpatient and outreach billing, on average, realize a 20% boost to profitability. 

For a very large health system, this incremental benefit alone may not be sufficient to rectify a 1.3% drop in system-wide operating margin. However, it seems prudent for department heads and RCM teams to be fully cognizant of this reality, and to explore options that avoid leaving substantial sums of money on the table. 

Following are additional resources for better understanding the impact of using purpose-built RCM in hospital outpatient and outreach settings. 

VIDEO 

Kyle Fetter, XiFin COO, in an address to HFMA members, explores the limitations and solutions for optimizing outpatient billing. 
 

ON-DEMAND WEBINAR

Representatives of Mayo Clinic and Mount Carmel Health System (Trinity Health) discuss the financial impacts of utilizing purpose-built RCM to support a highly efficient laboratory outreach program, able to provide a 30% margin contribution.