Kaufman Hall: Hospital Finances Complicated by End of Public Health Emergency

May 31, 2023
Even as hospitals begin to crawl back towards sustainable operating margins, they are experiencing the fallout from the unwinding of the Public Health Emergency, Kaufman Hall reports

Just as hospital organizations nationwide are beginning to crawl back towards sustainable operating margins, their bottom lines are being impacted by the unwinding of the Medicaid continuous coverage requirement that had been kept in place throughout the public health emergency (PHE), according to a new report from Kaufman Hall, the Chicago-based consulting firm.

Kaufman Hall shared the data in the form of a press release posted to its website on Wednesday, May 31. The press release began thus: “Hospital finances broke even in April amid a continuing trend of high expenses and the unwinding of the Medicaid continuous coverage requirement of the COVID-19 public health emergency (PHE), according to the latest National Hospital Flash Report from Kaufman Hall.”

The report did find that “The median year-to-date (YTD) operating margin index for hospitals was 0.0 percent in April, up slightly compared to -0.3 percent in March. With operating margins remaining at or below zero, hospitals have been left with little financial flexibility.”

Yet at the same time, the report noted, “Hospitals experienced increases in bad debt and charity care in April. Combined with decreased patient volumes, Kaufman Hall experts note these data could illustrate the effects of the start of widespread disenrollment from Medicaid following the end of the PHE and the continuous enrollment provision that accompanied it. As states continue the process of redetermination, these trends will likely continue.”

“With states conducting their Medicaid eligibility redetermination, it’s predicted that hundreds of thousands of people will ultimately become uninsured,” Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a statement included in the press release. “The data indicate that we may already be seeing the effects of disenrollment materialize with patients less likely to seek out the care they need and a continued rise in bad debt and charity care.”

Further, the press release noted, “High expenses have been placing added strain on hospitals as they try to recover from the challenges of the pandemic. Labor expense per adjusted discharge increased 3% in April from March, and the costs of goods and services continued to be well above pre-pandemic levels. While total expenses fell slightly in April, operating revenues declined at a faster rate, down 5% month-over-month.”

“Hospital and health system leaders must figure out how to navigate the new financial reality and begin to take action,” said Swanson. “In the face of operating margins that may never fully recover and inflated expenses, developing and executing a strategic path forward to a future that is financially sustainable is crucial.”

“Key Takeaways” in the report:

1. Hospitals broke even in April.

The median operating margin for hospitals was 0% in April, leaving most hospitals with little to no financial wiggle room.

2. Volumes dropped while lengths of stay increased.

Hospital volumes dropped across the board—including inpatient and outpatient. Emergency department volumes were the least affected.

3. Effects of Medicaid disenrollment could be materializing.

Hospitals experienced increases in bad debt and charity care in April. Combined with anemic patient volumes, experts note this data could illustrate the effects of the start of widespread disenrollment from Medicaid following the end of the COVID-19 public health emergency.

4. Inflation continued to throttle hospital finances.

Labor costs jumped in April and the costs of goods and services continued to be well above pre-pandemic levels. Though expenses generally fell in April, revenues declined at a faster rate.

Meanwhile, the report’s “Key Observations” were thus:

Ø  At their May meeting, the Federal Open Market Committee (FOMC) raised the benchmark borrowing rate another 25 basis points, setting the range to 5.00-5.25 percent and marking the 10th consecutive hike in the cycle as well as a 16-year high.

Ø  Fed officials acknowledged discussion of a potential pause in tightening while leaving wiggle room, saying “rates are going to come down” over a long period of time while also warning inflation “continues to run high” and the Fed will be taking a “data-dependent approach.”

Ø  The consumer price index (CPI) rose 0.4 percent in April, a 4.9-percent increase year-over-year, an annual pace of inflation below 5 percent for the first time in two years.

Ø  The labor market continued to show resilience in April as U.S. nonfarm payrolls grew by 253,000 and unemployment fell back to a 53-year low of 3.4 percent.

Ø  Strong inflation, a robust labor market, continued banking sector woes, and a debt ceiling standoff further complicates credit conditions and may challenge the Fed to stabilize financial markets.

Ø  Equities in April, as measured by the S&P 500, were up 1.5 percent in April and 8.6 percent YTD despite downbeat economic data, reoccurring banking sector fears, and mixed earnings.

The National Hospital Flash Report draws on data from more than 900 hospitals from Syntellis Performance Solutions. The full report can be accessed here.

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