Vital Signs 2022

Hospital Budgets Under Stress: Inflation, Supply Chain and Declining Revenue

Although there are few areas of the economy on which inflation has not had a dramatic impact, its arrival to healthcare was delayed—but its effects are already being felt. Per-enrollee spending within private health insurance plans dropped just a half of a percent in 2020 before rising 5.5% in 2021 and continuing to rise thereafter. Further increases are projected for 2022 and 2023 at 8.3% and 7.2%, respectively. Per-enrollee Medicare and Medicaid spending both have similar projections: Medicare is projected to jump 5.1% in 2022 and 3.3% in 2023, while Medicaid is projected to increase 6.7% in 2022 and 6% in 2023. Out-of pocket health care spending dropped by 3.7% in 2021. Projections show it jumping 4.6% in 2022 and 6.1% in 2023. While hospitals are experiencing the effects of inflation on multiple fronts, they have experienced them acutely within their supply chains. For both pharmaceuticals and general supply, expenses had already grown substantially during the 2020-2021 pandemic time period. The American Hospital Association estimated that during that time, drug expenses grew by 36.9% and supply costs increased by 20.6%. Since then, expenses have increased noticeably.

Healthcare real estate operations have also seen increased costs, attributable to supply chain bottlenecks and increased staffing costs across various building service providers. In general, medical office buildings saw expense growth hit a record high in Q1 2022. While revenues were also growing, revenue growth since has slowed and been outpaced with growth in expenses. In terms of healthcare systems specifically, revenues have experienced an even more turbulent year— with decreases across the board. Discharges, inpatient minutes and operating minutes all decreased as a result of higher numbers of patients with more acute sicknesses and smaller available labor pools to treat them. As with medical office buildings, hospitals have experienced some slowing in the growth of expenses over September and October. However, this slowdown has been insufficient to counteract the decreases in revenue, likely driving many health systems to reevaluate critical decisions regarding any future large scale expenditures—including in their real estate portfolios.

Healthcare real estate operations have also seen increased costs, attributable to supply chain bottlenecks and increased staffing costs across various building service providers.

Revenue & Expense Trends for Medical Office Buildings

6.0%

5.0%

4.0%

3.0%

2.0%

1.0%

0.0%

2017 Q1

2021 Q1

2018 Q1

2016 Q1

2019 Q1

2022 Q1

2017 Q3

2021 Q3

2018 Q3

2016 Q3

2019 Q3

2020 Q1

2022 Q3

2020 Q3

NOI Growth

Revenue Growth

Expense Growth

Source: Revista Med, Cushman & Wakefield Research

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