U.S. Hospitals Hit with Another Month of Low Volumes, High Expenses, and Poor Margins as COVID-19 Cases Mount

CHICAGO – November 30, 2020 – 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.

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.

“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.”

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.

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Kaufman Hall experts are available for comment, please contact Philip Anast at panast@acmarketingpr.com.

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