In a ‘setback,’ hospital margins, volumes decreased
- Hospitals’ August operating margins decreased by 12% from July.
- The August results reversed three months of recovery from the early effects of the coronavirus.
- The for-profit hospital outlook remains negative due to expected financial challenges, a rating agency says.
After three months of recovery, hospitals’ margins and patient volumes decreased in August, according to an industry tracking report.
Kaufman Hall’s tracking report of August results for more than 800 hospitals found that since July, operating margin decreased by 12% and discharges by 2%.
Those decreases followed three months of steady recovery from the March and April collapse of margins and patient volumes.
“August represents a setback in that progress, with margins falling both month-over-month and year-over-year,” the report’s authors wrote. “While the August numbers are concerning, they are not surprising. The road to recovery will be long and challenging, and fraught with ups and downs.”
Even with federal grants provided by the CARES Act, operating margins decreased by 2.3 percentage points year-to-date. On a percent-change basis, the decrease was 22%.
Other margin results, factoring in the federal aid, included:
- 3% decrease in operating margin year-over-year
- 28% decrease in operating margin month-over-month
- 3% above budget for the month
“Multiple factors contributed to the August declines, including continued low volumes and revenues, and high per-patient expenses,” the authors wrote.
Hospitals’ operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin results varied widely between regions, including:
- 16% decrease year-over-year and 13% above budget expectations in the Northeast/Mid-Atlantic
- 10% decrease both year-over-year and compared with budget in the Midwest
- 6% decrease year-over-year and 1% above budget in the West
- 3% increase year-over-year and at budget in the South
- 48% increase year-over-year and 46% above budget in the Great Plains
Operating EBITDA margins were worse for the largest hospitals, declining by 10% year-over-year and to 6% below budget for 300- to 499-bed hospitals. Hospitals with 500 beds or more decreased by 9% year-over-year and were 10% below budget.
Hospitals face volume challenges
August was the sixth consecutive month in which volumes were below 2019 levels and below budget. Discharges were down 11% year-to-date, compared with January to August 2019.
Other August volume results included:
- Adjusted discharges were 13% lower year-to-date, 12% lower year-over-year, 3% lower month-over-month and 8% below budget.
- Emergency department (ED) visits were 16% lower from January through August compared with the same period in 2019.
- Operating room minutes were 14% lower year-to-date, 6% lower year-over-year and month-over month and less than 1% below budget.
All regions had decreases in discharges year-over-year and compared with budget, but the largest occurred in the Great Plains, where they decreased by 15% year-over-year and were 13% below budget.
ED visits decreased year-over-year and came in below budget for hospitals in all regions. The largest decreases occurred in hospitals in the South and Northeast/Mid-Atlantic, both of which decreased by 18% year-over-year. ED decreases relative to budget were 17% at hospitals in the South and West.
The Kaufman Hall finding echoed a recent TransUnion Healthcare analysis of 500 hospitals that found ED visits and inpatient volumes stagnating at late-June levels as of the third week in August.
Outlook at for-profit hospitals
The soft August financial results came shortly after Moody’s Investors Service said that its for-profit hospital outlook (subscription required) remains negative due to an expected further decline in EBITDA over the next 12 to 18 months.
Other projections by the rating agency included:
- Accelerating migration of procedures out of the hospital to alternative settings
- Deteriorating payer mix amid high unemployment rates over the next 12 to 18 months
- Weakening earnings among hospitals that lack sizeable outpatient service lines
One positive expectation was for volumes to exceed 90% of normalized levels as long as no additional bans on elective surgeries are enacted.
“The remaining 10% is likely to come back more slowly throughout 2021, but faster if a vaccine becomes widely available,” the report states.