Hospital margins affected by urgent care, PCPs, telemedicine competition

Photo: John Fedele/Getty Images

More than two years after being on the front lines of the COVID-19 pandemic, hospitals and health systems continue to struggle financially due to its effects, according to Kaufman Hall's National Hospital Flash Report.

In April, the seven-day moving average of new COVID-19 cases grew to more than 57,853 at month's end, up from an average of 25,535 cases on April 1, the report said. 

But a new spike in COVID-19 cases in April is only part of the issue. While new COVID-19 variants reportedly cause less severe disease, those who go to the hospital due to COVID-19 or other illnesses tend to be sicker and more expensive to treat, according to the report.

It's a troubling trend for the financial health of hospitals, as the report shows more patients are seeking care outside the hospital setting at places such as urgent care centers, primary care physicians' offices and through telemedicine. However, a 2021 National Academies of Sciences, Engineering and Medicine report said that per-person visits to a primary care clinician declined 6%-25% between 2008 and 2016. Primary care accounts for 35% of healthcare visits while receiving about 5% of healthcare expenditures, the NASEM report said.

Kaufman Hall said hospitals are caring for the sickest of patients, including those with chronic conditions who may need infusions and more expensive treatment. Those with less severe illnesses may be going elsewhere.

Patients in April stayed in the hospital for longer periods, and discharges diminished, the report said.

"Hospital patients in 2022 are likely sicker, harder to discharge and more expensive to treat than hospital patients in 2021," said Erik Swanson, a senior vice president of data and analytics with Kaufman Hall. "Fewer patients who are sicker and more expensive weigh heavily on hospitals' operating margins, putting a strain on both expenses and revenue."

WHY THIS MATTERS

Overall, patient volume remained low as a growing number of patients infected by the coronavirus stayed home, other patients delayed care due to fears of a rising number of cases and those less severely ill sought treatment elsewhere.

This combination of significant decreases in patient volumes, with only a slight downturn in expenses, had a negative impact on revenue and operating margins.

While expenses dropped 4.3% from March, they remain high compared to 2020 and well above pre-pandemic levels, the report said. As in other areas of the economy, labor shortages and supply chain challenges contributed to expense levels. April expenses were up 8.3% year-over-year, and they rose 9.6% year-to-date compared to the same period last year.

Gross operating, inpatient and outpatient revenues in April all dropped approximately 7% from March levels. However, all are up year-to-date compared with the same period in 2021 – with gains of 6.6%, 5.3% and 8.5%, respectively.

Kaufman Hall said its year-to-date operating margin index reflecting actual margins was -3.09% through April. 

The median change in operating margin was down 38.1% from last month and 76% from April 2021. The median change in operating EBITDA margin decreased 26.8% month-over-month and 51.5% from April 2021.

This marks the fourth straight month of negative actual operating margins this year, the report said. 

"The first four months of the year have been highly challenging for hospitals and health systems, and do not bode well for the remainder of the year. Even if margins cumulatively return to pre-pandemic levels, many will still end up with substantially depressed margins at year's end," the report said.

THE LARGER TREND

The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report come from Syntellis Performance Solutions. 

The Cleveland Clinic recently reported a $282 million quarterly net loss due to rising expenses offsetting revenue gains during Q1.

ON THE RECORD

"Labor shortages, high prices for supplies, and cost increases to treat sicker patients over longer stays are ballooning hospital expenses," said Swanson. "With a bleak consensus outlook for the U.S. economy, those factors and their effects could be here for a while. The first four months of 2022 have been challenging for the nation's hospitals and health systems, which has been borne out in the losses many providers have reported so far this year. Even if margins return to pre-pandemic levels, many hospitals may likely end the year with substantially depressed margins."
 

Twitter: @SusanJMorse
Email the writer: SMorse@himss.org