A new report by the Chicago-based Kaufman Hall consulting firm is confirming what has been understood anecdotally and experientially across the U.S. healthcare system: the COVID-19 pandemic had a devastating impact on hospital operating margins this spring.
Indeed, Kaufman Hall’s August 2020 “National Hospital Flash Report,” based on July data from over 800 hospitals, has found that hospital operating margins have plunged 96 percent since the start of 2020 in comparison with the first seven months of 2019 as uncertainty and volatility continue in the wake of the COVID-19 pandemic.
“Those results do not include federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act,” the report stated. “Even with that aid, however, operating margins are down 28 percent year-to-date compared to January-July 2019. Operating Margins fell 2 percent year-over-year in July without the CARES Act relief, according to the latest edition of Kaufman Hall’s August National Hospital Flash Report (with July results). Hospitals also saw flat year-over-year gross revenue performance in July, continued high per-patient expenses, and a fifth consecutive month of volumes falling below 2019 performance and below budget. From June to July, however, hospital Operating Margins were up 24 percent, likely due to a backlog in demand resulting from the shutdown of many non-urgent services in the early months of the pandemic.
“COVID-19 has created a highly volatile operating environment for our nation’s hospitals and health systems,” said Jim Blake, managing director, Kaufman Hall, in publishing the report.
“We now are six months into the pandemic that has rocked healthcare infrastructures and economies across the globe. With more than 5 million cases and counting in the U.S., COVID-19 continues to place intense demands on the nation’s healthcare system,” Blake noted in an introduction to the report. “Hospitals and health systems have been hit hard by low volumes, high per-patient costs, and staggering revenues.”
What’s more, Blake wrote, “While the last few months have shown some signs of incremental progress, organizations have a long way to go to recover from devastating losses in the early months of the pandemic, as shown in this issue of the National Hospital Flash Report. A look at year-to-date performance results illustrates the difficult road ahead. In the first seven months of 2020, hospital Operating Margins have plummeted a full 96% or 842 basis points since the start of 2020 compared to the same seven-month period in 2019, not including federal CARES funding. Even with the funding, Operating Margins still are down 28 percent or 90 basis points year-to-date compared to January-July 2019.”
Further, “Patient volumes have shown some improvement over the last couple months, but remain well below 2019 levels. Adjusted Discharges are down 13 percent year-to-date, Adjusted Patient Days are down 11 percent, and Emergency Department volumes are down 17 percent compared to January-July 2019. While some hospitals have seen an uptick in surgery volumes due to a backlog in demand from the shutdown of non-urgent procedures in March and April, Operating Room Minutes remain 15% below 2019 levels year-to-date.”
What’s more, Blake noted, “Gross operating revenues have fallen 8 percent year-to-date, while Inpatient Revenue is down 5 percent and Outpatient Revenue is down 11 percent, not including federal aid. Meanwhile, hospitals have seen Total Expense per Adjusted Discharge jump 16 percent, Labor Expense per Adjusted Discharge jump 18 percent, and Non-Labor Expense per Adjusted Discharge jump 15 percent in the first seven months of 2020.”
Further, “Many unknowns persist surrounding COVID-19 and its impacts in the coming fall and winter months—including a very real possibility of the need for additional lockdowns to stem the virus’s spread,” Blake noted. “The combination of these factors continues to create significant volatility for hospitals and health systems nationwide, and profound uncertainty about their future viability.”
What’s more, the report noted, “July volumes continued to fall year-over-year but showed some signs of potential recovery month-over-month. Adjusted Discharges were down 7% compared to July 2019, but up 6% compared to June 2020. Adjusted Patient Days were down 4% year-over-year, but up 7 percent month-over-month. Adjusted Discharges are down 13 percent and Adjusted Patient Days are down 11 percent since the start of 2020, compared to the first seven months of 2019.”
Hospital emergency department (ED) volumes have been hardest hit, falling 17% year-to-date compared to the same period in 2019, down 17% year-over-year, and 13% below budget in July. Surgery volumes saw some gains with the continued resumption of non-urgent procedures pushing Operating Room Minutes up 3% month-over-month and 4% above budget in July, but they remain down 15% year-to-date.
Not including CARES Act relief, Gross Operating Revenues were essentially flat year-over-year and 2 percent below budget for the month but have fallen 8 percent year-to-date compared to the same period in 2019. Inpatient Revenue is down 5 percent year-to-date and fell 3 percent below budget in July but increased 1 percent year-over-year. Outpatient Revenue is down 11 percent year-to-date, 1 percent year-over-year, and 2 percent below budget.”
