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COVID-19 still taking toll on hospital margins, causing subsidies in professional revenue

by John R. Fischer, Senior Reporter | November 05, 2020
Business Affairs
Hospital margins, revenue and subsidies are still points of concern as the COVID-19 pandemic rages on
Operating margins and subsidies for inadequate professional revenue are still among the many causes for concern among hospitals as a result of the ongoing COVID-19 pandemic.

Kaufman Hall’s October National Hospital Flash Report and its quarterly Physician Flash Report show revenues and margins well below 2019 levels.

"The first seven months of the pandemic have created a tenuous situation for our nation's hospitals, with year-to-date performance falling significantly below 2019 levels," said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report, in a statement. "The coming months could be even more challenging, as rising COVID-19 cases collide with the seasonal flu, and consumers continue to avoid hospitals."

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The median hospital Operating Index ranked below 2019 performance at 2.7% year-to-date (YTD) through September with funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Take away the funding and it stands at -1.9%. The Kaufman Hall Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) Index also fell below 2019 YTD levels at 7.5% with CARES funding and 3.2% without it, according to the National Hospital Flash Report.

Median subsidy per physician by health systems jumped 14.1% between January and August, compared to the same time last year, leading to a loss of $227,000 per physician across all specialties, reports the Physician Flash Report. Health Systems also saw pandemic-related declines in revenue and margins for employed physicians, brought on by decreased physician productivity, increased physician compensation, and moderately increased revenues. Physician enterprises experienced a 7.6% decline in work Relative Value Unit (wRVU) per physician Full-time Equivalent from 2019 to 2020 due to COVID-19-related volume declines, combined with a 1.7% increase in Physician Compensation per FTE. Expanded coverage of virtual visits by healthcare payers led to a 2.5% increase in Net Revenue per Physician wRVU.

"Health system leaders must keep a pulse on physician practice performance as they continue to navigate COVID-19 and plan for a post-pandemic era," said Jim Pizzo, a managing director at Kaufman Hall and leader of the firm's physician advisory practice. "Our data in this new quarterly report provides valuable insights for CEOs, CFOs, and physician enterprise leaders as they seek new ways to ensure optimal value in these tumultuous times."

Despite the declines, operating margins in September rose year-over-year (YOY) compared to September 2019, by rates of 8.1% YOY and 7.8% above budget, without CARES relief. CARES funding brought it up 15% and 12.2% above budget. This rise along with a decrease in volumes was owed to discharges dropping 9.9% YTD and 5.6% YOY. The Medicare COVID-19 add-on of 20%, suspension of -2% sequestration adjustment, an increase in average length of stay, and lower bad debt also helped by increasing in payment per case. Net Patient Service Revenue (NPSR) per adjusted discharge rose 5.8% YTD and NPSR per Adjusted Patient Day increased 4.1% YTD.

A rise in Total Expense of 1.8% YTD and 3.5% YOY, however, offset higher revenues. Operating room minutes remained down by 12% but rose 3.6% YOY due to hospitals sifting through a backlog of cases. Emergency department visits dropped 19.1% YOY and 16.4% YTD as consumers continued to avoid EDs.

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