U.S. Hospitals and Health System Margins See Slim Margins in February as Inpatient and Outpatient Volumes Continue to Fall

Decreasing inpatient volumes combined with continued low outpatient volumes contributed to low-to-negative margins in February for hospitals and health systems nationwide, according to the latest issue of Kaufman Hall’s monthly National Hospital Flash Report.

National COVID-19 metrics declined throughout the month, following record highs in early January. New daily admissions of patients with confirmed COVID-19 fell 74% from a high of 18,009 on January 5 to 4,772 on February 28. While decreasing COVID-19 hospitalizations are a promising sign, hospitals and health systems remain in a tenuous position because the declines come as many healthcare consumers remain reluctant to seek outpatient services. February margins, volumes, and total revenues all fell below prior-year levels as a result. Meanwhile, expenses rose as organizations continue to bear the high costs of fighting the unpredictable COVID-19 virus.

The median Kaufman Hall hospital Operating Margin Index was –0.5% in February, not including Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the federal aid, it was 0.4%. The median Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin was 4.1% without CARES and 5.4% with CARES. Operating Margin dropped 30.8% (3 percentage points) year-over-year without the federal funding, and Operating EBITDA Margin was down 22.6% (3.2 percentage points).

Volumes fell below February 2020 levels across most metrics, with Adjusted Discharges down 13.8%, Adjusted Patient Days down 8.3%, and Operating Room Minutes down 6.9%. Emergency Department Visits saw the biggest year-over-year declines at 26.8% in February, continuing a trend of double-digit declines for the metric every month since the start of the pandemic in March 2020. Meanwhile, Average Length of Stay rose 7.3% compared to February 2020 but declined 3.4% from January, reflecting a decrease in high acuity COVID-19 patients requiring longer hospital stays.

Overall revenues were down for the month. Not including CARES aid, Gross Operating Revenue fell 4.6% year-over-year and Inpatient Revenue dropped 4.4%. Outpatient Revenue was down 5.5% compared to the same period last year, falling below prior-year levels for a tenth time in the past 11 months.

Adjusted expenses remained significantly above prior-year levels:

  • Total Expense per Adjusted Discharge was up 19.6%
  • Labor Expense per Adjusted Discharge increased 18.8%
  • Non-Labor Expense per Adjusted Discharge rose 20.7%
  • Supply Expense per Adjusted Discharge increased 18.0%
  • Drug Expense per Adjusted Discharge was up 29.1%
  • Purchased Service Expense per Adjusted Discharge increased 24.3%

“Declines in coronavirus-related hospitalizations definitely are an encouraging sign in our fight against this pandemic,” said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report. “In the months ahead, hospitals and health systems will need to adjust from a focus on acute to less acute patients at a time when continued low outpatient volumes will fail to offset decreasing inpatient volumes. The pandemic has significantly changed patient behaviors, with many continuing to delay non-urgent care and greater reliance on telehealth services. How those shifts will manifest themselves over the long-term remain to be seen.”

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

Kaufman Hall experts are available for comment, please contact Tiffanie Thomas at tthomas@MessagePartnersPR.com.