Kaufman Hall Report: Hospitals Squeezed Between Shrinking Volume and Rising Expenses
U.S. hospitals continue to experience considerable financial strain because of the ongoing COVID-19 pandemic, a new report by the Chicago-based Kaufman Hall consulting firm has found.
On Nov. 30, the firm published a press release announcing its latest report on hospital finances. “Instability spurred by the COVID-19 pandemic continued to hit hospitals and health systems nationwide in October,” the press release began. “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.”
Indeed, the Kaufman Hall leaders found, “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 percent 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 percent year-to-date. Operating Margin fell 69.4 percent year-to-date (6.0 percentage points) compared to the same period last year, and 9.2 percent year-over-year (1.4 percentage points) without CARES Act funding. With the federal aid, Operating Margin fell 18.7 percent year-to-date (1.7 percentage points) and 8.5 percent (1.2 percentage points) below October 2019 levels.”
And it quoted Jim Blake, a managing director at Kaufman Hall, and publisher of the firm’s National Hospital Flash Report, which draws on data from more than 900 U.S. hospitals, as saying that "The next few months will be a grave period for our country, and for our nation's hospitals and health systems. 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,” Blake said.
The press release went on to note that “Declining volumes and rising expenses contributed to the month's low margins. Adjusted Discharges fell 11.2 percent year-to-date and 9.3 percent year-over-year, while Adjusted Patient Days dropped 7.7 percent year-to-date and 2.9 percent year-over-year. Operating Room Minutes fell 11.7 percent year-to-date and 5.6 percent compared to October 2019, as many patients opted to delay non-urgent procedures. Emergency department (ED) Visits remained the hardest hit, falling 16 percent both year-to-date and year-over-year in October, but increased 1.9 percent from September. The month-over-month increase was due in part to rising COVID-19 infections, which also contributed to a 7.6 percent month-over-month increase in Discharges, reflecting higher numbers of inpatients.”
Meanwhile, the press release noted, “Gross Operating Revenue (not including CARES Act funding) fell 4.8 percent 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 percent year-to-date and 2.6 percent year-over-year. Inpatient Revenue declined 2.4 percent year-to-date but rose 2.6 percent year-over-year.”
Significantly, “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 percent year-to-date and 12.2 percent 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.”
