A resurgence of COVID-19 cases from rapid spread of the highly contagious Delta variant is raising new uncertainties for hospitals, health systems, and physician practices across the country, according to two new reports from Kaufman Hall.

Hospitals and health systems experienced setbacks in July as the variant drove dramatic spikes in new COVID-19 cases and hospitalizations. Margins and volumes both fell across key metrics compared to pre-pandemic levels seen in 2019, according to the latest issue of the National Hospital Flash Report. While revenues rose above 2019 levels, those gains were offset by escalating expenses. The July results also suggest that some healthcare consumers once again may be postponing non-urgent procedures and other outpatient care due to COVID-19 concerns.

“Hospitals likely will face additional setbacks with continued spread of the Delta variant and concerns over diminishing protection from the COVID-19 vaccines,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Not surprisingly, hospitals in the regions with the highest rates of the variant were most affected in July, and we expect those impacts to deepen in the months ahead.”

Physician groups also saw expenses increase in the second quarter of 2021 versus pre-pandemic levels, along with continued high investments required to supplement insufficient physician revenues. Combined with rising COVID-19 rates, these trends offer cause for concern despite productivity and revenue improvements for the quarter, according to the latest issue of Kaufman Hall’s Physician Flash Report.

“Physician practice volumes and productivity are returning to pre-pandemic levels across much of the United States, which is a promising sign,” said Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall. “At the same time, rising expenses and high levels of investment remain a significant challenge for physician groups.”

For hospitals, actual margins remained narrow. The median Kaufman Hall hospital Operating Margin Index was 3.2% in July, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Operating Margin was down 7% year-to-date compared to the first seven months of 2019 without CARES Act funding, due in part to rising expenses for higher acuity cases, including COVID-19 patients. Compared to losses seen early in the pandemic in 2020, however, Operating Margin jumped 83.9% year-to-date (YTD) without federal aid. Hospitals in the South experienced the greatest year-over-year drop in margins as the region grappled with high rates of the Delta variant.

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