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Hospital margin increases offset by expenses and uncertain future as COVID-19 and flu season collide

Higher revenues through September were offset by rising expenses of 3.5% year-over-year, according to Kaufman Hall report.

Mallory Hackett, Associate Editor

Hospitals, health systems and physician practices continue to operate in a variable and uncertain environment, according to two new reports from Kaufman Hall.

The first, the October National Hospital Flash Report, looks at actual and budget data from more than 900 hospitals of all types, from large academic to small critical access. The new Physician Flash Report includes national data from nearly 100,000 providers representing more than 100 specialties.


Hospitals' median operating margin index stands significantly lower than 2019, coming in at 2.7% year-to-date through September, including the Coronavirus Aid, Relief, and Economic Security Act funding. Without it, the median operating margin index is -1.9%.

The EBITDA margin index through September was 7.5% year-to-date with CARES funding, and 3.2% without the funds.

Hospitals saw their September operating margins increase year-over-year from 2019, despite lower volumes for the seventh month in a row. They rose 8.1% year-over-year and were 7.8% above budget without CARES funding. With the funds, operating margins went up 15% year-over-year and were 12.2% above budget.

Kaufman Hall attributes the increase in margins, despite volume decreases, to rising average length of stays, the 20% Medicare COVID-19 add-on, suspension of the -2% sequestration adjustment and lower bad debt.

The higher revenues through September were offset by rising expenses, which were 1.8% year-to-date and 3.5% year-over-year.

For physician practices, the report found a 14.1% increase in overall subsidy, or loss, from January to August, compared to the same period last year. The jump resulted in an average subsidy of $227,000 per physician across all specialties.

Surgeons had the highest associated costs, with a median subsidy of $347,000 per physician in 2020. Psychiatry was an outlier and the only cohort to see subsidies decrease this year by $38,000 per physician.

These declines in physician margins can be attributed to decreased physician productivity (-7.6% year-over-year), increased physician compensation (1.7% year-over-year) and moderately increased revenues (2.5% year-over-year), according to Kaufman Hall.


As COVID-19 cases surge across the country, and with the start of flu season, Kaufman Hall warns that the results could be both detrimental for the public's health and for the financial wellbeing of hospitals and physician practices.

It also points out that many organizations will soon have to repay Medicare Accelerated Payments and any paycheck protection funding used, a situation that only adds more pressure to their balance sheets.

Further, if all of these factors align with the possibility of continued losses in patient volumes, Kaufman Hall predicts, the "repercussions could be significant."

Last week, the U.S. reported the highest number of new COVID-19 cases in a single day – a record-breaking 99,750 new cases, according to the Centers for Disease Control and Prevention. With the spike, the country now has 9,268,818 confirmed cases.

Congress has been unable to agree on legislation for more relief funding that might help hospitals, as the CARES Act did.

This is only the beginning of a new wave of COVID-19 cases, according to public health officials. Both Dr. Anthony Fauci, the nation's leading infectious disease expert, and Dr. Scott Gottleib, the former FDA Commissioner, predict that the winter is going to be a difficult time in terms of COVID-19 cases.


"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."

Twitter: @HackettMallory
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