Latest COVID-19 Surges Impact Hospital Operating Margins

Hospital operating margins took a hit in November as rates of infection and COVID-19 hospitalizations ticked up yet again across the country, according to the latest National Hospital Flash Report.

The report from healthcare consulting firm Kaufman Hall analyzed November financial performance for over 900 hospitals. The analysis found that margins declined by 11.6 percent compared to the same period last year and 16.4 percent compared to the previous month, and that was without including funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Including the funding, margins were down by an average of 8.3 percent year-over-year.

Meanwhile, operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) margins were down by 11.0 percent year-over-year and 11.5 percent month-over-month, without including CARES Act funding.

Hospital operating margins have been falling for months because of the COVID-19 pandemic, and November’s most recent downturn could spell trouble for hospital financial performance during the upcoming winter season, the report indicated.

“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.”

The December report confirmed that COVID-19 cases have soared across the country, as inpatient volume surpassed 2019 levels for the first time since the start of the pandemic.

Patient days rose by 4.0 percent year-over-year, the report found. However, discharges remained below 5.1 percent year-over-year, which led to across-the-board increases in average length of stay (8.7 percent year-over-year and 4.7 percent month-over-month).

“These increases indicate an uptick in higher acuity cases, including COVID-19 patients,” according to the report.

All other volume metrics were down in November, with emergency department visits continuing to be hit the hardest as consumers continue to avoid certain healthcare settings out of fear of transmission.

Emergency department visits fell by 15.5 percent year-to-date, while adjusted discharges fell by 11.1 percent year-to-date and operating room minutes fell by 12.2 percent year-to-date.

With hospitalizations rising, inpatient revenue increased by 12.7 percent year-over-year even though the November tally was down slightly year-to-date (0.6 percent). Outpatient revenue, on the other hand, fell by 0.6 percent year-over-year and 6.0 percent year-to-date.

Overall, gross operating revenue, not including CARES Act funding, was up by 4.2 percent year-over-year and down by 3.8 year-to-date.

At the same time, expenses continued to increase as hospitals treated “fewer but sicker patients,” the report stated.

Drug expense per adjusted discharge experienced the most dramatic increase last month, rising 16 percent year-to-date and 28.9 percent year-over-year. Purchased service expense per adjusted discharge also climbed significantly, jumping 20.0 percent year-to-date and 24.9 percent year-over-year.

Overall, total expense per adjusted discharge far exceeded 2019 levels, increasing by 14.0 percent year-to-date and 17.3 percent year-over-year.

Labor expense per adjusted discharge also rose by 15.2 percent year-to-date and 14.7 percent year-over-year, and non-labor expense per adjusted discharge increased by 14.2 percent year-to-date and 17.1 percent year-over-year.

This could be a “troubling sign of things to come,” experts at Kaufman Hall stated, especially if COVID-19 cases continue to increase during the winter.

The US has been averaging over 211,000 new cases of COVID-19 a day, according to the COVID-19 Tracking Project.

But experts hope the shipments of two vaccines approved by the FDA for emergency use will help to stymy the growth, at least among healthcare workers and those at highest risk of severe infection, such as nursing home residents.

Depending on distribution though, hospital financial performance could continue to sink as vaccination efforts just start to get underway.