New Kaufman Hall Report: Hospital Profitability, Revenues Are Down, Even As Expenses Are Up

U.S. hospitals are facing declining operating margins, even as they face increases in core expenses: that’s a core conclusion of a report released in late December by the Chicago-based Kaufman Hall consulting and advisory firm.

According to the report, entitled “December 2019 Kaufman Hall Perspective,” “Hospitals across the country saw significant profitability declines in November. Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin was down -14.5 percent or -200.1 basis points (bps) year over year, while Operating Margin was down -21.3 percent or -208.1 bps.” Indeed, the report finds, “Month over month, Operating EBITDA Margin fell -14.3 percent in November, or -215.6 bps, and Operating Margin fell -23.4 percent, or 239.2 bps. Operating EBITDA Margin was -5.2 percent or -48.7 bps compared to budget for the month, and Operating Margin was -6.4 percent or -36.0 bps to budget. Contributing factors include weak performance across volumes and revenues, and higher-than-expected labor and non-labor expenses. Purchased services, in particular, jumped significantly in November.”

With regard to revenues specifically, the report found that “Revenue performance was relatively weak for hospitals across the country in November. Net Patient Service Revenue (NPSR) per Adjusted Patient Discharge was up just 0.3 percent year over year and 1.4 percent month over month, performing 0.9 percent compared to budget expectations. NPSR per Adjusted Patient Day was up 0.4 percent year over year and flat month over month, and up just 0.4 percent to budget. The Inpatient/Outpatient (IP/OP) Adjustment Factor also was up 0.4 percent year over year, but fell -2.6 percent month over month and performed 1.0 percent to budget. Bad Debt and Charity as a Percent of Gross saw some favorable declines, down -0.4 percent year over year and -0.8 percent month over month, performing significantly below budget at -5.3 percent.”

Meanwhile, with regard to inpatient volume, the report found that “Hospitals nationwide saw volumes fall in November, both year over year and month over month for most metrics. Month over month declines were the most significant. Operating Room (OR) Minutes, for example, had the steepest month-over-month decline, at -9.4 percent. Adjusted Discharges fell -8.5 percent month over month, and Adjusted Patient Days were down -7.6 percent.”