Kaufman Hall: Hospital Margins Dented by Falling Patient Volume

Aug. 28, 2023
The latest Kaufman Hall “National Hospital Flash Report” finds hospital margins pulled down in July by decreasing patient volume, especially outpatient, even as expenses declined slightly

The latest report from the Chicago-based consulting and analyst firm Kaufman Hall on hospital organizations’ financial performance was a gloomy one; on Aug. 28, the firm released its latest “National Hospital Flash Report.” And it found that hospitals’ financial performance worsened in July compared to the previous month, with volume decreasing and bad debt and charity care on the rise.

In releasing its “National Hospital Flash Report” for August, the analysts at Kaufman Hall reported that “The median calendar year-to-date (CYTD) operating margin index for hospitals was 1.3 percent in July, down slightly from 1.4 percent in June. Adjusted discharges per calendar day decreased 7 percent from the previous month. Lower patient volume led to a decline in expenses, but not enough to offset revenue losses.”

At the same time, Kaufman Hall’s experts said, “The data show a greater pullback in volume on the outpatient side, which may be attributed to patients choosing not to pursue elective procedures during the summer. Hospitals and patients are continuing to feel the effects of Medicaid eligibility redeterminations, as more than 30 states disqualified previous enrollees in June and July.”

“It’s clear that today’s challenging financial environment is here to stay, and hospital leaders must be proactive in seeking out opportunities to refine their operations and remain competitive,” said Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, in a statement contained in the press release. “Collecting good data and feedback is essential for making timely, evidence-based process improvements.”

In addition, the press release noted, “Hospitals have struggled to transition patients to post-acute care settings due to lack of space in many facilities. Developing ongoing relationships with local nursing homes to establish a clear pathway for discharge can reduce patients’ length of stay and get them the care they need afterward.”

“Hospitals that prioritize care transitions are performing better than institutions who do not,” Swanson said. “Identifying steps that can ensure a smooth transition, such as obtaining prompt pre-authorizations and planning discharge early, will help organizations reduce expenses and improve patients’ experience.”

The report’s “Key Takeaways” are as follows:

1. Hospital performance declined on a month-over-month basis in July.  All volume indicators registered declines this month. However, when compared to 2022, there is some slight improvement in operating margins.

2. Outpatient volumes decreased slightly more than inpatient. Some of this decline may be attributed to less patients seeking elective procedures in summer.

3. Expenses declined, but not enough to offset revenue losses.  Labor continues to be the biggest share of hospital expenses, and expenses will likely continue to fluctuate due to inflation.

4. Bad debt and charity care rose month-over-month. Medicaid eligibility redetermination continues to affect hospitals and patients, with more than 30 states disenrolling people in June and July.

The report’s authors—Brian Pisarsky, senior vice president, strategic and financial planning—and Erik Swanson, senior vice president, data and analytics—also offer readers the following advice:

“In an environment where hospitals continue to feel the effects of Medicaid disenrollment and labor expenses, those that have been more successful have made care transition a priority.

Hospitals should consider:

• Starting off right by obtaining the necessary pre-certifications and payer authorizations before the patient comes in the door, as well as planning for discharge as soon as they are admitted.

• Collecting data and using it to inform process improvement. Hospitals need to quantify lengths-of-stay and related data, and more importantly, use this data to make change.

• Establishing relationships with post-acute care settings and having a clear pathway for patients’ post-discharge transition.

The full report can be accessed here.