A new report commissioned by the Alabama Hospital Association (AHA) suggests that profit margins for Alabama hospitals were down nearly 80% from pre-pandemic levels in 2022. Now, the AHA is seeking American Rescue Plan Act (ARPA) funds from the state.
According to an AHA spokesperson, the money would be used to “provide short-term assistance to Alabama hospitals.”
The report from health care consulting firm Kaufman Hall indicated that even with federal and state funding through laws such as the CARES Act, 2022 was the worst year financially for hospitals since the pandemic began.
The report suggested that half of Alabama’s hospitals finished in the red in 2022. Before the pandemic, this percentage was less than a quarter.
The report used a sample of Alabama hospitals of different sizes and types.
It claimed that hospital expenses have increased during the pandemic by billions of dollars. Though hospital revenue increased by 15%, expenses rose at a faster rate. Among the increased expenditures were labor costs, which increased by 30% relative to 2019 heavily due to contract labor. The price of medical supplies also increased.
Moreover, hospital volumes dropped in 2022, reaching below 2019 levels, but individual patients stay longer when they go to the hospital. The report claimed this was likely due to patients visiting the hospital to address more serious health needs but also because labor shortages prevent hospitals from discharging patients sooner.
The report claimed that Alabama hospitals saw more significant declines in operating margins than the national median and that states which have expanded Medicaid saw lower declines.
However, former State Sen. Trip Pittman said expanding Medicaid won’t necessarily fix the problem.
“What hospitals fail to realize is that Medicaid expansion would shift untold Alabamians from private insurance, with high reimbursement rates for hospitals, to Medicaid, with low reimbursement rates for hospitals,” Pittman told 1819 News.
Pittman cited another study from 2020 which concluded expanding Medicaid did not help struggling hospitals.
“[The study] found that following Medicaid expansion, hospitals in expansion in states saw their Medicaid losses increase by 50 percent,” Pittman explained. “This far outweighed any increases in revenue they gained as a result of expansion. In fact, between 2013 and 2016, this same study found that hospitals in expansion states saw their collective profit margins drop by more than $2 billion, or about 10 percent, all while hospital profit margins in non-expansion states actually increased.”
Pittman insisted that hospitals in expansion states close to Alabama, such as Arkansas, Louisiana and Kentucky, have continued to close despite promises from expansion advocates.
“Medicaid expansion does not save hospitals,” Pittman said. “It harms them.”
“The [Kaufman Hall] report clearly shows that Alabama’s hospitals are in serious financial difficulty, which creates a huge threat to the ability of Alabamians to have access to healthcare,” said Kaufman Hall’s senior vice president of Data and Analytics Erik Swanson.
“A collapse of the system would have a ripple effect on the state’s economy as a whole,” said AHA chairman Joseph Marchant. “There is not one area of our state and local economic infrastructure that doesn’t depend on hospitals and other healthcare providers.”
AHA president Donald E. Williamson warned that the state has only “a short window” to avoid seeing hospitals close. He said closures would especially affect rural areas and suggested that “state and national leaders” should “ensure the system avoids collapse.”
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