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Hospital operating margins are down 96% through July

The COVID-19 pandemic has created a volatile environment, and there's a long road ahead to recovery.

Jeff Lagasse, Associate Editor

Hospital operating margins have plunged 96% 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, according to Kaufman Hall's new National Hospital Flash Report for July.

These results do not include federal funding from the Coronavirus Aid, Relief, and Economic Security Act. Even with that aid, however, operating margins are down 28% year-to-year compared to January through July of 2019.

Operating margins fell 2% year-over-year in July without the CARES Act relief, the report found. 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.

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From June to July, however, hospital operating margins were up 24%, likely due to a backlog in demand resulting from the shutdown of many nonurgent services in the early months of the pandemic.

WHAT'S THE IMPACT?

All of this is a testament to the volatile environment caused by the coronavirus, and, while hospitals have shown some signs of incremental financial recovery in recent months, there's no guarantee that these trends will continue. There's still a long road ahead for those trying to recover from the steep losses incurred during the early months of the pandemic.

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% month-over-month. Adjusted discharges are down 13%, and adjusted patient days are down 11% since the start of 2020, compared to the first seven months of 2019.

Hospital emergency department 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 nonurgent 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% below budget for the month, but have fallen 8% year-to-date compared to the same period in 2019. Inpatient revenue is down 5% year-to-date and fell 3% below budget in July, but increased 1% year-over-year. Outpatient revenue is down 11% year-to-date, 1% year-over-year and 2% below budget.

Hospitals nationwide also continued to see higher per-patient expenses, despite having fewer patients. Total expense per adjusted discharge has jumped 16% year-to-date compared to the same seven-month period in 2019, and rose 9% year-over-year and 5% above budget in July. 

Labor expense per adjusted discharge is up 18% year-to-date, and rose 9% year-over-year and 5% above budget in July. Non-Labor Expense per Adjusted Discharge has increased 15% during the first seven months of 2020, jumped 11% year-over-year, and was 5% above budget for the month.

THE LARGER TREND

A rough July comes on the heels of a rough June, in which operating margins declined 188 basis points compared to May – suggesting many facilities are unable to adjust or flex expenses to coincide with declining volume, posing a fundamental risk to hospitals and health systems. Larger hospitals have struggled to flex as well, partially due to more complicated corporate structures.

One area that has fared better than most is mergers and acquisitions. Transaction volumes are down from the norm, but only slightly, suggesting the public health crisis may be strengthening the rationale for future partnerships.

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com