Hospitals Hit with Low Volumes, High Expenses, Poor Margins as COVID-19 Cases Mount

What You Should Know:

– October was a challenging month for hospitals and
health systems nationwide amid ongoing instability spurred by the COVID-19
pandemic, according to Kaufman Hall’s latest Hospital Flash Report.

– Margins and volumes fell, revenues flattened, and
expenses rose as COVID metrics continued to climb and some states moved to
retighten social distancing guidelines.

– As of Oct. 31, the number of daily U.S. COVID cases
reached a high of more than 90,500 and related hospitalizations surpassed
47,400.

Instability spurred by the COVID-19 pandemic
continued to hit hospitals and health systems nationwide in October. Margins
fell, revenues flattened, and expenses rose as organizations saw an eighth
consecutive month of shrinking volumes, according to the November
issue of Kaufman Hall’s National Hospital Flash Report.

Rising COVID-19 rates are expected to exacerbate volume
declines as many local and state governments reinstate stricter social
distancing policies, causing many to delay non-urgent procedures and outpatient
care. The result threatens to further destabilize hospitals financially in the
coming months.

Key Findings

– Eight months into the pandemic, the Kaufman Hall median
hospital Operating Margin Index was –1.6% for January through October, not
including federal funding from the Coronavirus Aid, Relief, and Economic
Security Act (CARES Act). With the funding, the median margin was 2.4%
year-to-date.

– Operating Margin fell 69.4% year-to-date (6.0 percentage
points) compared to the same period last year, and 9.2% year-over-year (1.4
percentage points) without CARES Act funding. With the federal aid, Operating
Margin fell 18.7% year-to-date (1.7 percentage points) and 8.5% (1.2 percentage
points) below October 2019 levels.

– Declining volumes and rising expenses contributed to the
month’s low margins. Adjusted Discharges fell 11.2% year-to-date and 9.3%
year-over-year, while Adjusted Patient Days dropped 7.7% year-to-date and 2.9%
year-over-year. Operating Room Minutes fell 11.7% year-to-date and 5.6%
compared to October 2019, as many patients opted to delay non-urgent
procedures.

– Emergency Department (ED) Visits remained the hardest hit,
falling 16% both year-to-date and year-over-year in October, but increased 1.9%
from September. The month-over-month increase was due in part to rising
COVID-19 infections, which also contributed to a 7.6% month-over-month increase
in Discharges, reflecting higher numbers of inpatients.       

– Gross Operating Revenue (not including CARES Act funding)
fell 4.8% from January to October compared to the same period in 2019, but was
flat compared to October 2019. Fewer outpatient visits were a major
contributor, driving Outpatient Revenue down 6.6% year-to-date and 2.6%
year-over-year. Inpatient Revenue declined 2.4% year-to-date but rose 2.6%
year-over-year.

– Expenses rose as hospitals continued to bring back
furloughed workers, and purchased drugs, personal protective equipment, and
other supplies needed to care for COVID-19 patients. Total Expense per Adjusted
Discharge rose 13.5% year-to-date and 12.2% year-over-year in October. Labor
Expense and Non-Labor Expense per Adjusted Discharge rose 15.2% and 13%
year-to-date, respectively. Such increases will put hospitals in a tenuous
situation if volumes continue to decline.

Why It Matters

“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 National Hospital Flash Report, which draws on data from more than 900 U.S. hospitals. “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.”

For more information, click here
to download the report.

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