With 2018 now in the books, it's possible to see how certain trends played out in the world of healthcare. Kaufman Hall was certainly interested in examining the year that was, and in looking back, the firm found that while 2018 got off to a bad start, hospital volumes and profitability rebounded here and there -- though not nearly enough to make it a banner year.
The summer months tended to be stronger on the profitability front, but Kaufman Hall's December Flash Report found it was the second month in a three-month period in which profitability declined.
Operating EBITDA margin declined 54 basis points and operating margin declined 83 bps. This performance is being driven, in part, by declining volumes and utilization, increasing lengths of stay, and increasing expenses -- particularly for supplies and purchased services.
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"Overall, the first half of the year was a very bad half," said Kaufman Hall Managing Director Jim Blake. "A lot of bad performance overall in various regions, by profitability, by volumes."
Things turned around during the middle of the year -- June, July and August were profitable months -- but nothing that would set the world afire. The industry as a whole was eking it out during that time.
After slipping again in September, there was an October surprise: an uptick in volumes and revenue, month over month and year over year. Then another decline that continued through December, capping an overall disappointing year.
Throughout the summer, said Blake, hospitals managed profits through simple expense management.
In October, he said, "the driver of the results was increased volume and revenue driving the stronger profitability compared to previous years. That was something we had not seen for months prior to that."
One macro trend that emerged from the data is that national and regional health systems have improved their expense management, although Blake has yet to see good, consistent use of management from a variability standpoint.
November in particular was a challenging month for hospitals. All volume indicators underperformed compared to the previous month and prior year, resulting in underperformance relative to budget expectations.
Both discharges and adjusted discharges have shown large swings month-over-month, with adjusted discharges experiencing a 6 percent decline relative to October, after experiencing an almost 8 percent increase over the month prior.
Length of stay increased from October to November, but achieved a second month of declines relative to the prior year (after two straight months of increases relative to prior year).
Emergency department visits and operating room visits were down relative to both the prior year and prior month.
Operating room minutes in particular have experienced large swings over the past six months -- with two months of increases or decreases greater than 10 percent relative to the prior month, and the other four months experiencing a 5 percent or greater swing.
Blake said the push toward site-neutral payments could have a negative impact, with sustained pressure in terms of various payers and price transparency, and some of what they're allowing and disallowing.
"There's a lot that could have some pretty big impact on bottom lines," said Blake. "Could you expense your way around those types of changes?"
The 340B drug program experienced changes as well. Any one of those changes is serious in and of itself, said Blake, but in aggregate the difficulties could be compounded. These systemic changes could forecast difficulty in 2019, though Blake was quick to point out that the worst case scenario likely won't come to pass.
"If all of these come true, 2019 could be a challenging year, but the way these things go, probably not all of these things will happen," said Blake.
Finally there's the ongoing transition from fee-for-service reimbursement models to value-based care. It's happening, said Blake, but it's a very regional shift.
"There are many places where it's not meaningful at this point," he said. "If you go into some systems and you talk about value-based, they won't even talk to you, because even though it's been talked about for years, they're focused on other stuff. In some areas, there's less clarity than ever coming out of Washington."
Having real-time data boosts the dialogue, said Blake.
"They go from cost-cutting to diagnosing actual performance in real time. If you have a bad February, you're correcting it in March, You're making small incremental changes every month. If you can diagnose the problem early, what you can do in terms of the treatment is very different than if you can't diagnose it."