Pandemic Continues to Drive Performance Declines for U.S. Hospitals and Physician Groups

CHICAGO October 27, 2020 – The COVID-19 pandemic continues to create a difficult, uncertain operating environment for the nation’s hospitals, health systems, and physician practices, according to two new Kaufman Hall reports—the October National Hospital Flash Report and the new, quarterly Physician Flash Report.

The Kaufman Hall median hospital Operating Margin Index stands well below 2019 performance at 2.7% year to date (YTD) through September with federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding, and -1.9% without CARES funding. The Kaufman Hall Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) Margin Index stands at 7.5% YTD with CARES funding and 3.2% without CARES, also well below 2019 YTD levels, according to the National Hospital Flash Report.

Meanwhile, the costs associated with operating employed physician practices—and the level of investment needed to subsidize inadequate professional revenue—remain significant concerns for health system executives nationwide in the wake of the pandemic. The Physician Flash Report found that median Subsidy (Loss) per Physician by health systems jumped 14.1% from January to August compared with the same period last year, resulting in a median subsidy, or loss, of $227,000 per physician across all specialties.

For hospitals, September margins increased year-over-year (YOY) compared to September 2019 as volatility continued, despite a seventh consecutive month of volume declines. Operating Margin rose 8.1% (0.75 percentage points) YOY and 7.8% (0.62 percentage points) above budget without CARES relief. With CARES relief, Operating Margin rose 15% (1.2 percentage points) YOY and 12.2% (1 percentage point) above budget.

Several factors contributed to margin increases amid suppressed volumes, with Discharges down 9.9% YTD and 5.6% YOY. Organizations benefitted from the 20% Medicare COVID-19 add-on, suspension of the -2% sequestration adjustment, an increase in Average Length of Stay, and lower bad debt—all of which helped to drive increases in payment per case. Net Patient Service Revenue (NPSR) per Adjusted Discharge rose 5.8% YTD and NPSR per Adjusted Patient Day increased 4.1% YTD.

Higher revenues were offset by a rise in Total Expense of 1.8% YTD and 3.5% YOY. Operating Room Minutes remained down 12%, but showed some recovery rising 3.6% YOY as hospitals pressed on through a backlog of cases. Emergency Department Visits fell 19.1% YOY and 16.4% YTD as consumers continued to avoid emergency departments.

“The first seven months of the pandemic have created a tenuous situation for our nation’s hospitals, with year-to-date performance falling significantly below 2019 levels,” said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report. “The coming months could be even more challenging, as rising COVID-19 cases collide with the seasonal flu, and consumers continue to avoid hospitals.”

Health systems also cope with pandemic-related declines in revenues and margins for employed physicians, the Physician Flash Report found. Contributing factors include decreased physician productivity, increased physician compensation, and moderately increased revenues.

From 2019 to 2020, physician enterprises saw a 7.6% decrease in work Relative Value Unit (wRVU) per physician Full-time Equivalent (FTE) due to COVID-19 related volume declines, coupled with a 1.7% increase in Physician Compensation per FTE. Expanded coverage of virtual visits by healthcare payers contributed to a 2.5% increase in Net Revenue per Physician wRVU.

“Health system leaders must keep a pulse on physician practice performance as they continue to navigate COVID-19 and plan for a post-pandemic era,” said Jim Pizzo, a managing director at Kaufman Hall and leader of the firm’s physician advisory practice. “Our data in this new quarterly report provides valuable insights for CEOs, CFOs, and physician enterprise leaders as they seek new ways to ensure optimal value in these tumultuous times.”

The National Hospital Flash Report draws on data from more than 900 hospitals.

The new Physician Flash Report includes national data from Syntellis’ Axiom Physician Budgeting Tool, which contains data on nearly 100,000 providers representing more than 100 specialties. 

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