More on Reimbursement

High hospitalization rates, consumer fears hit hospitals and physician groups

The numbers speak to the struggles the healthcare industry faces as it remains in the midst of the battle against the coronavirus.

Jeff Lagasse, Associate Editor

High COVID-19 hospitalization rates and consumer reluctance to visit healthcare facilities for nonurgent care continue to drive poor performance for the nation's hospitals, health systems and physician groups.

While some of the metrics are on the upswing, there's still a long way to go.

According to Kaufman Hall's January Flash Report, the median hospital operating margin index closed a tumultuous 2020 at 0.3%, not including federal Coronavirus Aid, Relief, and Economic Security Act funding. With the funding, it was 2.7%. The median 2020 operating Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin was 5.1% without CARES and 7.6% with CARES.

HIMSS20 Digital

Learn on-demand, earn credit, find products and solutions. Get Started >>


The numbers speak to the struggles the healthcare industry faces as it remains in the thick of the battle against the coronavirus. Physician practices saw some gains from July to October 2020, but remained below 2019 levels on most performance measures, the data showed. The median investment needed to subsidize inadequate physician revenues fell 9.5% for the quarter, but was up 0.5% year-over-year in October at $194,632 per physician.

For hospitals, escalating expenses coupled with declining volumes and outpatient revenues continued to stress limited resources. The median operating margin dropped 55.6% throughout 2020 without CARES, and was down 16.6% with CARES. In December, the operating margin declined 18% year-over-year but increased 21.2% from November without CARES.

Rising COVID-19-related hospitalizations pushed inpatient volumes up for a second consecutive month in December. Patient days rose 4.5% compared to December 2019. Discharges, however, were down 4.3% year-over-year and down 7.3% year-to-date, indicating an increase in higher acuity patients requiring longer care. The average length of stay rose 11% year-over-year and 6.6% from January through December 2020.

Emergency department visits again saw the biggest volume declines, falling 16.2% for January through December and 22.6% year-over-year. Operating room minutes fell 10.5% over the calendar year as many patients delayed nonurgent procedures due to coronavirus concerns.

Lower volumes contributed to revenue declines, particularly for outpatient services. Gross operating revenue (not including CARES aid) dropped 3.1% in 2020, while outpatient revenue fell nearly 6%. Inpatient revenue was essentially flat, rising just 0.3% for the year.

Meanwhile, hospitals continued to see expenses mount as they bore the high costs of caring for high acuity patients, including COVID-19 cases. Total expense per adjusted discharge and labor expense per adjusted discharge both increased 14.4% throughout 2020, and non-labor expense per adjusted discharge was up 14.2%.

Hospitals and health systems also have been affected by year-over-year declines in volumes and revenues to physician practices. Physician productivity – measured as physician work Relative Value Units (wRVUs) per Full-Time Equivalent (FTE) – was 4.9% below 2019 levels in October due to fewer patient visits and lower hospital diagnostic and procedural volumes compared to pre-pandemic levels.

New patient visits, which are key to growing physician practices, also declined year-over-year. Contributing factors include negative economic trends, competitive telehealth offerings and the continued reluctance of some patients to visit physician offices. The lower productivity drove net revenue per physician FTE down 4.5% year-over-year compared to 2019.


Although many experts, including those at Kaufman Hall, fear for the future if COVID-19 cases continue to rise, several recent events could lead to a turnaround for the nation's hospitals.

Following the presidential election of Joe Biden, the equity markets responded positively, with the Dow rising 11.84% and closing above the 30,000 mark for the first time in history.

Additionally, the U.S. has now rolled out two approved COVID-19 vaccines, one developed by Pfizer and BioNTech and one from Moderna, though the vaccine rollout has been sluggish to date.


"The increasing size of employed physician groups and the level of investment needed to support them continue to strain health system operating margins," said Cynthia Arnold, senior vice president at Kaufman Hall. "While inpatient care and procedures offset those subsidies somewhat, long-term success will require joint system-physician leadership representation and robust data and analytics to address physician productivity issues."

Twitter: @JELagasse
Email the writer: