Healthcare Financial Recovery Takes a Hit from Delta Surge

Both hospitals and physician groups have hit a setback with healthcare financial recovery following this summer’s resurgence of positive COVID-19 cases, a pair of new Kaufman Hall reports reveal.

Hospital margins and volumes both dropped across key financial metrics compared to pre-pandemic levels, according to the firm’s National Hospital Flash Report for hospital financial performance in July 2021.

The data from over 900 hospitals showed that the median hospital operating margin index was 3.2 percent—not far from the median in June— not including federal COVID-19 funding. It was 4.1 percent with the funding included. However, the operating margin without funding was down by 7 percent compared to pre-pandemic levels and up by just 1 percent including funding.

Hospital volumes also dipped in July, with emergency department (ED) visits taking the biggest hit compared to pre-pandemic levels. ED visits were down by 13 percent year-to-date, while adjusted discharges fell 4 percent year-to-date and operating room minutes saw no change.

Meanwhile, hospital revenues were up compared to both 2019 and 2020 for the fifth consecutive month, the report stated. However, expenses were still high, with expense per adjusted discharge experiencing a 14.1 percent increase compared to January through July of 2019. Labor expense per adjusted discharge also rose 12.5 percent year-to-date compared to 2019.

Physician practices also experienced an increase in expenses in the second quarter of 2021, the Physician Flash Report showed. This area is a concern for the firm, which also cited continued high levels of physician investment a potential issue.

The average physician investment and compensation per work relative value unit (wRVU) fell by more than 20 percent from the second quarter of 2020 to the same period in 2021, the report using data from nearly 100,000 providers found. At the same time, physician revenues and productivity increased over 40 percent and expenses by more than 20 percent.

But median investment/subsidy per physician full-time equivalent (FTE) remained high at $232,583.

Additionally, median actual paid physician compensation per FTE was $312,799 this past quarter, a 5 percent increase from the same period in 2020.

Healthcare financial recovery for physician practices was a mixed bag the second quarter of 2021. While increased productivity, especially as a result of people returning to the office for delayed care, is a positive sign, areas of concern still spell trouble for practices, Kaufman Hall stated.

The recovery process may even be harder for hospitals and health systems.

“Hospitals likely will face additional setbacks with continued spread of the Delta variant and concerns over diminishing protection from the COVID-19 vaccines,” Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said in a press release. “Not surprisingly, hospitals in the regions with the highest rates of the variant were most affected in July, and we expect those impacts to deepen in the months ahead.”