Hospitals Maintained Margin Performance in 2019 in the Face of Rising Expenses, Says Kaufman Hall Report

CHICAGO – February 27, 2020 – The nation’s hospitals saw overall margin and revenue improvements in 2019. Weaker performance toward the end of the year and ever-rising expenses, however, emphasize the need for continued, relentless leadership focus on performance improvement during uncertain times in healthcare, according to a new report from Kaufman Hall, a leading provider of enterprise performance management (EPM) software, data, and management consulting services.

The second annual National Hospital Flash Report Year in Review issue examines how hospitals across the country performed overall in 2019 (compared to 2018), and offers breakdowns across several of the driving factors of volumes, revenues, and expenses.

The overall picture was cautiously optimistic, according to the report, with hospitals reporting improved margin performance in 2019 compared to 2018. Operating earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 2.0% or 39 basis points (bps), while operating margin rose 7.4% (78 bps). This growth was driven by modest revenue gains and some volume increases that helped offset rising expenses.

While most months saw favorable year-over-year operating performance, margins declined significantly in August and November, bringing down the overall total gains. Additionally, Operating margin saw favorable performance nine months, but flat-to-declining performance three months.

Expenses continue to rise

The need for more accurate budgeting and financial planning, with greater ability to respond to a rapidly changing healthcare landscape, was accelerated by rising expenses in 2019. Total expense per adjusted discharge rose 3.4% year over year and was 1.4% to budget. Labor expense per adjusted discharge was up 2.6% for the year, while non-labor expense per adjusted discharge was up 4.0% due to increases in supply, drug, and purchased services expenses per adjusted discharge.

Volumes seesaw

The continued shift towards outpatient volume resulted in inpatient volumes well below expectations and at or below last year. Other national volume indicators showed mixed performance in 2019, according to the report. While there were year-over-year increases for most metrics, a majority still performed below budget, indicating a need for more precise forecasting. Adjusted patient days saw the greatest year-over-year increase at 2.5% but was up just 0.3% to budget. Likewise, adjusted discharges rose 0.7% during that time period, but fell short of budget expectations. There were modest increases, however, in adjusted discharges throughout 2019 despite dipping below 2018 performance in six months, while adjusted patient days rose steadily for most of the year.

Revenues meet expectations

Year-over-year revenue improved in 2019, with net patient service revenue (NPSR) per adjusted discharge rising 3.7%, which was slightly over budget, and NPSR per adjusted patient day rising 1.5%, on par with budget. A review of the trend lines, however, offers concerns as NPSR per adjusted discharge showed slight but steady declines in performance throughout 2019 and NPSR per adjusted patient day performed above 2018 levels for 10 of 12 months, but steadily decreased in its positive variance throughout the year.

“While it was good to see improvements in many financial areas, the long-term trendlines indicate that this is not a time for the C-suite to relax,” said Jim Blake, managing director at Kaufman Hall and lead author of the report. “These modest gains were made during a time when the economy was strong, unemployment was historically low, and government regulations favored business. There also were no existential health threats, such as the COVID-19 coronavirus outbreak nor the risks that come any time there is a national election. Hospital and health system leaders should take this opportunity to shore up their strategic financial planning capabilities, especially for the long term, to ensure they are prepared for whatever 2020 brings.”

Read the full 2019 National Hospital Flash Report Year in Review to learn more.

About Kaufman Hall

Kaufman Hall provides a unique combination of software, management consulting and data solutions to help society’s foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.

Kaufman Hall software includes the Axiom Software Suite, providing sophisticated, flexible performance management solutions that empower finance professionals to analyze results, model the future, and optimize organizational decision making. Solutions for long-range planning, budgeting and forecasting, performance reporting, capital planning, and cost accounting deliver decision support, reporting, and analytics within an integrated software platform. Kaufman Hall’s Clinical Analytics empower healthcare organizations with clinical benchmarks, data, and analytics to provide a higher quality of care for optimized performance and improved patient outcomes.

Press Contact:

Philip Anast
Amendola Communications (for Kaufman Hall)
Email: panast@acmarketingpr.com
Phone: 312-576-6990