Hospital margins continue to fall amid rising expenses

After months of shaky performance reports from the nation's hospitals, November held much of the same, according to Kaufman Hall's December Flash report, which examines metrics from the previous month. Hospital operating margins and revenues fell as expenses continued to rise above budget expectations and above 2019 levels.

Rising inpatient volume due to increases in COVID-19 cases is only expected to "worsen in the months ahead as holiday gatherings and colder weather drive case counts up even further, with more activities moving indoors," the report said.

WHAT'S THE IMPACT

November's median hospital operating margin came in at 2.5% year-to-date with the Coronavirus Aid, Relief, and Economic Security Act funds and -1.1% without them. The hospital EBITDA margin with CARES Act funding was 7.6% and 7.2% without.

When comparing these figures to 2019, margins were down and hovered right around budget. Operating margins were down more than 56% year-to-date and more than 11% year-over-year, yet were 0.1% above budget, not including CARES Act funding. Operating EBITDA fell by more than 35% year-to-date and 11% year-over-year and was nearly 2% above budget without CARES.

With CARES, the operating margin fell 8.3% and 16.7% year-over-year and year-to-date, respectively. Operating EBITDA margin also declined, falling 7.5% year-over-year and 10% year-to-date.

The report noted some "unusual volume shifts in November" as inpatient volumes surpassed 2019 levels for the first time since the beginning of the COVID-19 pandemic. Increases in patient days and decreases in discharges led to across-the-board increases in the average length of stay, which went up 8.7% year-over-year and 4.7% month-over-month.

All other volume metrics were down, however. Emergency department visits fell 15.5% year-to-date and operating room minutes declined 12.2% year-to-date.

Gross operating revenue, without factoring in CARES, fell 3.8% year-to-date but was up 4.2% year-over-year. Still, it fell 2.3% below budget. The increase in inpatient volumes was a major contributor, as inpatient revenue increased 12.7% year-over-year and was 5.4% over budget. Inpatient revenue was down 0.6% year-to-date.

As for outpatient revenue without CARES, it decreased 0.6% year-over-year and 6% year-to-date, coming in 5.8% below budget.

Continually raising expenses can be attributed to "the high costs of caring for fewer but sicker patients," the report said.

The total expense per adjusted discharge rose 14% year-to-date and 17.3% year-over-year. Labor expense per adjusted discharge rose 15.2% and 14.7% year-to-date and year-over-year, respectively. Non-labor expense per adjusted discharge rose 14.2% year-to-date and 17.2% year-over-year. Drugs and supplies expense per adjusted discharge continued to rise rapidly at 18.7% and 28.9% year-over-year, respectively.

THE LARGER TREND

Although many experts, including those at Kaufman Hall, fear for the future if COVID-19 cases continue to rise, several recent events could lead to a turnaround for the nation's hospitals.

Following the presidential election of Joe Biden, the equity markets responded positively, with the Dow rising 11.84% and closing above the 30,000 mark for the first time in history, the Kaufman Hall report said.

Additionally, the U.S. has now rolled out two approved COVID-19 vaccines. First was the Pfizer and BioNTech vaccine that began distribution last week and now the Moderna vaccine that began shipping out this week.

After months of going back and forth over another COVID-19 stimulus bill, Congress has agreed on a package worth $900 billion. The bill sends funds toward vaccine distribution, ends surprise billing, adds funds to COVID-19 testing efforts and more.

ON THE RECORD

"U.S. hospitals and health systems will face untold challenges in the months ahead," said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report. "Even with millions of doses of COVID-19 vaccine now in distribution, the virus is expected to continue its rapid spread and further strain vital healthcare facilities that already face limited resources and serious capacity issues. Now is the time--we must support our nation's hospitals."

Twitter: @HackettMallory
Email the writer: mhackett@himss.org