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Volume growth contributes to improved hospital margins in October, finds Kaufman Hall

Decreased labor expenses also contributed to the strong financial performance for the month, though non-labor expenses increased.

Jeff Lagasse, Associate Editor

Average operating margins for U.S. hospitals in October increased month over month and year over year, contributing to strong operating performance and also modest gains in revenue, as well as lower bad debt and charity care.

According to Kaufman Hall's November Flash Report, Operating Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin in October was up 250.1 basis points (bps) over the previous month, with operating margin up 285.7 bps. Operating EBITDA margin was up 85.1 bps over the previous year.

Decreased expenses also contributed to the strong financial performance for the month.

Volume performance was a bit more mixed during the month, but showed overall improvement across most categories. Discharges, for instance, rose 1.5% year over year and 4.8% month over month. The figures for adjusted discharges, respectively, showed increases of 2.9% and 6.3%; and adjusted patient days rose 3.5% over last year and 5.1% over September.

The greatest variances were found in operating room minutes, which were up 14.9% over the previous month, and 4.7% year over year. Average length of stay and emergency department visits both saw volumes decrease.

WHAT'S THE IMPACT

Revenue gains in October were generally modest. Net Patient Service Revenue per Adjusted Patient Discharge rose 1.5% from 2018 and 1.2% from last year; while NPSR per Adjusted Patient Day saw figures of 1.5 and 2.2%, respectively.

Bad debt and charity as a percentage of gross was down 4.8% both year over year and month over month, and was 5.2% below budget.

October also saw a decrease in labor expenses, but this was coupled with an increase in non-labor expenses. Total expense per adjusted discharge was down 0.2% from 2018 and 1.9% from September, coming in at about. 0.3% below budget.

The year-over-year and month-over-month figures for labor expense per adjusted discharge both dipped, at 1.8 and 3.1% respectively; by contrast, the figures for non-labor expense per adjusted discharge was up 1.8% over last year, but down 1.1% month over month.

THE LARGER TREND

The upswing in hospital performance follows a summer that saw a decline in profitability. In August, that trend was driven by softening volumes.

What the fall and winter months have in store is unclear. What is clear is that volume and profitability are intimately linked, and organizations that can better predict volumes and react to changes will have a competitive advantage in an industry that is being increasingly disrupted.

Twitter: @JELagasse

Email the writer: jeff.lagasse@himssmedia.com