Hospital margin pressure continues - rising expenses and delta variant offset revenue, volume gains

August 02, 2021
U.S. hospitals and health systems continued to experience tight margins in June, as rising expenses offset revenue and volume improvements—amid concern about the impact of the COVID-19 Delta variant—according to the latest issue of Kaufman Hall's National Hospital Flash Report.

Key performance metrics improved compared to poor performance seen in the early months of the pandemic in 2020, but expenses rose above 2019 levels. Revenues surpassed both 2019 and 2020 performance. Overall, hospital metrics have shown steady improvements in recent months as COVID-19 cases declined, but increasing spread of the Delta variant and inconsistent vaccination rates are raising new uncertainties.

Actual margins remained tight. The median Kaufman Hall hospital Operating Margin Index was 2.8% in June, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the funding, it was 4.3%. Compared to early devastation from COVID-19 during the first six months of 2020, Operating Margin jumped 89.5% year-to-date (YTD), not including CARES. With CARES, Operating Margin was up 48.7% YTD. Compared to the first half of 2019, however, Operating Margin was down 10.3% YTD without CARES but rose 3.7% YTD with CARES.

Total Expense per Adjusted Discharge fell 2.6% from January-June compared to the first six months of 2020, when large-scale purchases of personal protective equipment and other items needed to care for COVID-19 patients drove up hospital expenses. Compared to the first six months of 2019, however, Total Expense per Adjusted Discharge was up 14.5%.

Volumes rose above 2020 levels but remained down versus pre-pandemic levels across key metrics. Adjusted Discharges, for example, rose 10.1% YTD compared to January-June 2020, but fell 4.4% YTD compared to the same period in 2019. Emergency Department Visits rose 3.2% YTD versus 2020, but were down 14.8% YTD from 2019. Operating Room Minutes were up across the board, rising 20.4% YTD above last year's results, and 2.6% YTD versus 2019.

Revenues were up compared to both 2019 and 2020, due in part to rising outpatient revenues. Gross Operating Revenue (not including CARES), rose 18.2% YTD over 2020 and 7.9% YTD versus 2019. Inpatient Revenue was up 11.9% YTD compared to the first six months of 2020, and 3.3% YTD compared to the same period in 2019. Outpatient Revenue saw the biggest increases, jumping 24.3% YTD from 2020 and 9.6% YTD from 2019.

"Rising expenses are contributing to relatively tight hospital margins, even as revenues and volumes continue to show signs of improvement," said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall. "And the increasing spread of the Delta COVID-19 variant may stifle further recovery in the coming months."

The National Hospital Flash Report draws on data from more than 900 hospitals. Data from the report comes from Axiom's Comparative Analytics from Syntellis Performance Solutions.

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