Rocky Hospital Financial Performance Suggests Long Road to Recovery

Hospital financial performance started on a low note in 2021, with margins, volumes, and outpatient revenues all below prior year performance in January, according to the latest data from healthcare consulting firm Kaufman Hall.

The firm’s February issue of the National Hospital Flash Report showed that hospital operating margin declined by 46.1 percent, or 4.6 percentage points, from January 2020 to January 2021, not including financial aid from the federal government through the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Month-over-month, the operating margin was down 26.7 percent, or by 3.1 percentage points, the first month of the year.

Meanwhile, the median operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was down by 34.1 percent year-over-year and 17.4 percent month-over-month without CARES Act funding.

With the federal aid, the operating margin declined by 42.4 percent (4.0 percentage points) and operating EBITDA margin decreased by 25.4 percent (3.8 percentage points) year-over-year.

All this occurred while some areas experienced a surge in pandemic-related hospitalizations at the start of the month and most hospitals continued to underperform in terms of other volumes because of consumer reluctance to seek care.

Hospital volumes were down across most metrics, the report showed, with discharges falling 12.7 percent, adjusted discharges 17.6 percent, adjusted patient days 8.3 percent, and operating room minutes 16.6 percent, compared to prior year performance.

Emergency department visits also continued to see the largest year-over-year volume decline at 24.7 percent, the report also revealed.

With volumes declining, hospital revenue also took a hit in January. Outpatient revenue, in particular, fell by 10.4 percent year-over-year, making it the ninth time the metric has declined below prior-year levels in the past ten months, Kaufman Hall reported.

In contrast, inpatient revenue increased modestly by 1.3 percent year-year-year.

Overall, gross operating revenue was down by 4.8 percent year-over-year, not including CARES Act funding while net patient service revenue (NPSR) per adjusted discharge increased by 19.0 percent and NPSR per adjusted patient day rose by 9.7 percent year-over-year.

In line with previous months, hospital expenses also continued to increase in January as facilities encountered high labor, drugs, and personal protective equipment costs, the report stated. Total expense increased by 4.5 percent year-over-year.

Together, the metrics indicate consequences for the healthcare industry that “will persist indefinitely,” the report stated. Hospitals and health systems have a long road to recovery.

“January marked a potential turning point in the pandemic, as we saw federal coronavirus statistics start to wane later in the month,” Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report, said in an email to RevCycleIntelligence.

“While declining COVID-19 cases and hospitalizations are a very welcome sign, the pandemic continues to create a challenging situation for hospitals and health systems. We must remain vigilant in our fight against the virus, and in providing these vital institutions the support they need to move toward recovery,” Blake stated.

The pace of COVID-19 vaccination has picked up, according to national news sources. With more than 45 million doses administered as of February 20, as the Commonwealth Fund reports, hospitals and health systems can expect a decline in COVID-19 patients and possibly the expense of caring for those patients.

But these providers will still face a host of challenges, including adapting to a new, virtual business model that bloomed during the pandemic and getting scared patients back into the office when it is safe to do so.

These challenges could continue to create financial problems for hospitals and health systems as they rethink how to deliver care in the wake of the pandemic.