Hospital Margins, Volumes Still Falling Months into Pandemic

October was a challenging month for hospitals, according to healthcare consulting firm Kaufman Hall.

The firm’s latest National Hospital Flash Report found that hospital operating margins fell yet again, sinking to a median of 2.4 percent year-to-date including funding from the federal government through the Coronavirus Aid, Relief, and Economic Security (CARES) Act and -1.6 percent without the funding.

In total, October margins for over 900 US hospitals were down by nearly 69.4 percent, or 6.0 percentage points, year-to-date and 9.2 percent, or 1.4 percentage points, year-over-year, compared to the same period last year and without CARES Act funding.

With the funding, hospital operating margin fell by 18.7 percent year-to-date (1.7 percentage points) and 8.5 percent year-over-year (1.2 percentage points). However, margins increased by 6.8 percent, or 0.7 percentage point, above budget by the month’s end.

But even with the support of the CARES Act, hospitals are in a precarious situation. COVID-19 cases hit a new record high by the end of October and have continued to increase since, with hospitalizations and death also on the rise.

“The next few months will be a grave period for our country, and for our nation's hospitals and health systems," said Jim Blake, a managing director at Kaufman Hall and publisher of the report. "If unchecked, the virus is projected to continue its rapid spread through communities as families gather for the holidays, and as colder weather pushes more activities indoors. The potential public health implications and financial impacts for our hospitals could be dire."

Rising COVID-19 metrics could result in more shelter-in-place orders, like those currently being enforced in Los Angeles County in California. As a result, hospitals are likely to see volumes plunge even further.

Kaufman Hall found that hospital volumes fell for the eighth consecutive month in October, with emergency department visits remaining the hardest hit metrics with a 16 percent reduction both year-to-date and year-over-year.

Adjusted discharges also decreased by 11.2 percent year-to-date and 9.3 percent year-over-year, while adjusted patient days dropped by 7.7 percent year-to-date and 2.9 percent year-over-year.

Meanwhile, operating room minutes decreased by 11.7 percent year-to-year and 5.6 percent compared to October 2019. This may have been because patients chose to delay non-urgent procedures as COVID-19 surged across the country, according to the report.

Emergency department visits may start to creep back up as COVID-19 cases increase, and this was likely the case in October when emergency department visits finished with a 1.9 percent month-over-month increase compared to September 2020.

The increase in emergency department visits month-over-month also contributed to a 7.6 percent month-over-month increase in overall discharges, which accounted for a higher number of inpatients, including hospitalized COVID-19 patients, the report stated.

But overall decreases in volumes across service lines contributed to lower hospital revenues in October, which dipped by 4.8 percent year-to-date without including CARES Act funding.

Specifically, decreases in outpatient revenue (6.6 percent year-to-date) outpaced decreases in inpatient revenue (2.4 percent year-to-date). Inpatient revenue, however, did increase 2.6 year-over-year, likely because of a greater number of COVID-19 hospitalizations.

COVID-19 also continues to impact hospital expenses eight months into the pandemic, Kaufman Hall found.

Total expense per adjusted discharge rose by 13.5 percent year-to-date and 12.2 percent year-over-year in October as hospitals incurred the costs of drugs, personal protective equipment, and other supplies in the face of higher COVID-19 numbers.

Additionally, labor expense per adjusted discharge increased by 15.2 percent year-to-date and 10.8 percent year-over-year, as providers replenished the workforce in anticipation of another surge.

Future increases in both labor and total expenses are likely as COVID-19 numbers continue to increase into the winter, but the high costs could further deteriorate hospital financial performance, especially if volumes continue to fall as they have done in the last eight months.

Even an impending COVID-19 vaccine is unlikely to turn around hospital financial performance, the report stated.

The FDA is currently reviewing emergency use authorization requests for two COVID-19 vaccines from pharmaceutical companies Pfizer and Moderna. However, limited supplies of the drugs would mean that states would have to restrict who is eligible to get the vaccine by the end of the year, if the FDA approves the vaccines for emergency use.

The American Hospital Association (AHA) expects hospitals to lose at least $323 billion by year’s end without additional support from the federal government. The revenue losses would “put hospitals’ survival at serious risk,” the AHA stated.