Hospitals, Physician Groups Confront Fast-Rising Expenses

CHICAGO – November 1, 2021 – Escalating expenses continued to plague U.S. hospitals, health systems, and physician groups in September as healthcare providers grappled with the aftermath of the latest COVID-19 surge, according to two reports released today by Kaufman Hall. Hospitals experienced declines across most performance metrics during what proved to be a challenging month, while physician groups saw some gains but an uptick in the level of investments required to supplement physician revenues.

Hospitals again saw high numbers of high-acuity patients, but overall volumes decreased relative to pre-pandemic levels. Coupled with rising expenses, the trends led to margin declines despite an increase in revenue from prior year. The median change in Operating Margin dropped 18.2% from August to September and 1.7% compared to before the pandemic in September 2019, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Hospitals in regions hardest hit by the recent COVID-19 Delta surge were most affected, with the West, South, and Northeast/Mid-Atlantic all experiencing year-over-year margin declines.

Patient Days decreased 1.4% from August to September, likely due in part to a decline in COVID-19 patients. At the same time, the average patient length of stay rose, discharges decreased, and patient days remained high relative to pre-pandemic levels.

Expenses and revenues in September continued to climb above both 2020 and 2019 levels, but a 3.3% drop in outpatient revenue from August suggests possible consumer worries about accessing care during the recent Delta variant-related surge.

“Multiple factors are contributing to alarming and sustained increases in hospital expenses,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall. “Growth in labor expenses are outpacing increases in hours worked, suggesting hospitals are paying more due to nationwide labor shortages. Rising supply and drug expenses also point to worldwide supply chain issues.”

Meanwhile, physician groups saw significant revenue and productivity gains in the second and third quarters, marking two consecutive quarters of increases relative to both 2020 and 2019 performance. Physician expenses, however, climbed above pre-pandemic levels for a third straight quarter, due in part to increases in non-labor expenses such as drugs and medical supplies. As a result, the average Investment/Subsidy per Physician Full-Time Equivalent (FTE) rose 12.2% in comparison to the third quarter of 2019 to $231,654 in Q3 2021.

Physician productivity—measured as Physician work Relative Value Units (wRVUs) per FTE— increased 9.4% compared to the third quarter of 2020. Net Revenue per Physician FTE (including advanced practice providers) jumped to $660,762, up 11.4% from the third quarter of 2020. 

“Physician activity has come roaring back in the second and third quarters of this year,” said Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall. “We’re seeing significant increases in physician productivity and revenues, but higher expenses are driving increases in physician investments. Also concerning is the ever-widening gap between practices requiring the highest versus the lowest levels of investment, suggesting the emergence of clear winners and losers as physician practices prepare for a COVID-19 endemic future.”

The National Hospital Flash Report draws on data from more than 900 hospitals, and the Physician Flash Report draws on data from nearly 100,000 providers representing more than 100 specialties. Data from both reports come from Syntellis Performance Solutions.

Kaufman Hall experts are available for comment, please contact Tyler Williams at twilliams@MessagePartnersPR.com.