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US hospital operating margins plummet 282%, says new study

by John R. Fischer, Senior Reporter | May 27, 2020
Business Affairs
The COVID-19 pandemic caused operating margins for U.S. hospitals to dive 282% in April and be 326% below budget.
Operating margins for U.S. hospitals dived 282% in April compared to the same time last year, and are 326% below budget.

That’s the toll the COVID-19 pandemic has had, according to a new Kaufman Hall report, which attributes the damage to severe volume and revenue declines in what is just the first full month for hospitals grappling with the effects of the virus.

“The pandemic is threatening hospitals' fundamental financial viability at a time when we need them most,” Jim Blake, managing director at Kaufman Hall, told HCB News. “Moving forward, we expect hospitals will develop leaner, more efficient care models that maximize resources, are responsive to emerging consumer expectations, and continue to offer the highest levels of care.”

Data was derived from more than 800 hospitals. Median operating margin fell to -29% and the median operating EBITDA margin dropped by 174% compared to the same time last year, and ended at -19% for the end of the month and was 191% below budget.

Surgery volumes declined the most, due to delays of non-urgent procedures. Operating room minutes were down 61% in April compared to the same time in 2019 and were more than triple the declines seen in March. Discharges fell 30% year-over-year, and ED visits dropped by 43%.

Those hit greatest were outpatient service providers, with revenue falling 50% YOY and 51% below budget. Inpatient revenues dropped 25% YOY and were 30% below budget. Total gross revenue was down 30% YOY and 33% below budget expectations.

April expenses remained high despite the lower numbers of patients, with total expense per adjusted discharge rising 59% YOY; labor expense per adjusted discharge up 63%; and non-labor expense per adjusted discharge up 58%.

The losses, according to the report, began in mid-March, when hospitals first witnessed across-the-board declines. Despite cost-cutting efforts such as mass furloughs and pay cuts, and federal funding, such as the $50 billion in relief by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, total expenses declined only slightly and did not come close to keeping up with volume declines.

In addition to its financial toll, the pandemic has created a number of changes in hospital operations and delivery of care that may be in effect long-term and possibly, permanently, according to Blake.

“Hospitals have taken significant steps to safely care for COVID-19 patients while protecting employees and other patients from exposure,” he said. “We are already seeing significant changes in the delivery of medicine, from the creation of separate units or facilities to safely treat COVID-19 patients to dramatic increases in virtual visits nationwide. A small but growing number of hospitals have begun providing patients with acute care services from the comfort of their homes. In the wake of the pandemic, we expect hospitals will continue to find new ways to safely provide high-quality care to all patients.”

The findings were published in the May issue of Kaufman Hall’s National Hospital Flash Report.

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