News | Healthcare Business Trends

Hospital operating margins decline 21% in 2019, tracking firm finds

News | Healthcare Business Trends

Hospital operating margins decline 21% in 2019, tracking firm finds

  • Operating margins for hospitals declined 21% in 2019.
  • Small hospitals and those in the Great Plains region performed the worst financially.
  • Two rating agencies recently moved their outlooks for not-for-profit hospitals from neutral to positive amid what they saw as strong financial performance.

Operating margins declined in much of 2019, with small hospitals experiencing the worst performance, according an industry finance tracking firm.

Kaufman Hall’s monthly analysis for about 800 hospitals found a 21.3% decline in operating margins and a 14.5% decrease in EBITDA operating margins from November 2018 to November 2019.

The firm cited poor patient volumes and revenues and higher-than-expected labor and nonlabor expenses.

Where the margins weren’t

Hospital margins varied widely in different parts of the country, including:

  • A 21.8% decline in operating EBITDA margin in the Great Plains region
  • A 4.8% decline in operating EBITDA margin in the West region
  • A 12.2% decline in operating EBITDA margin in the South region
  • A -10.3% variance to budget for operating EBITDA margins in the Northeast/Mid-Atlantic region
  • A -7.2% variance to budget for operating EBITDA in the Midwest region
  • A -2.6% variance to budget for operating EBITDA in the South region

Did size relate to hospital performance?

Operating EBITDA margin declined during the period for all hospital categories based on bed size, Kaufman Hall found. Additionally, November was the fifth straight month of profitability decreases for the largest hospitals — those with at least 500 beds — and their EBITDA margin declined nearly 15% over the entire period.

Operating EBITDA margin at the smallest hospitals — those with fewer than 26 beds — declined 22.8%, which was the most significant year-over-year decline among any hospital type. Kaufman Hall blamed margin declines among those hospitals on a nearly 8% drop in inpatient discharges and the attendant lost revenue.

Operating EBITDA margins declined 13.7% over the year at hospitals with 200-299 beds and 1.7% at hospitals with 100-199 beds.

Views differ on hospitals’ 2019 performance

The Kauffman Hall findings came the same month that Moody’s Investor Service and Fitch Ratings changed their sector outlooks for the not-for-profit hospitals they track from negative to stable, citing improved financial performance.

For instance, Fitch expected “operating profitability will likely continue to level off in 2020, following the slight uptick in our 2019 medians showing improved profitability for the 'BBB' category credits and improvements in the negative slope of the curve in our 'A' and 'AA' category credits.”

Additionally, Fitch noted that balance sheet strength remains at essentially an all-time high for the sector.

“By any traditional measure — days cash on hand, debt to capitalization — the sector has benefited from favorable investment market conditions, positive cash flow and generally manageable spending on capital expenditures,” Fitch wrote. “All of these combined to push key balance sheet measures to levels not seen since before the 2008 market crash, and have, to a large extent, mitigated some of the operational pressures seen in the sector in recent years.”

Moody’s found that increasing inpatient admissions in 2019 were fueling revenue growth.

Citing revenue growth and stricter cost controls, Moody’s estimated a 2019 increase of more than 2% in operating cash flow.

 

About the Author

Rich Daly, HFMA senior writer and editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

Advertisements

Related Articles | Healthcare Business Trends

Research & Reports | Innovation and Disruption

COVID-19 Hospital & Health System Survey: The Impact of the Pandemic on Provider Revenues, Elective Procedure Volumes, Telehealth Use, and Working Arrangements

The results of a May 2020 HFMA study about the impacts of COVID-19 and the challenges it has caused in terms of revenue, volume, care delivery, and business operations.

News | Coronavirus

HFMA recommended coronavirus resources

The coronavirus is affecting the healthcare industry in unprecedented ways, and HFMA wants to help you stay up to date on the latest news about the outbreak. Come back to this page regularly for coronavirus resources, selected specifically for healthcare finance professionals, including Medicare information on regulations and guidelines, COVID-19 test pricing, COVID-19 coding, telehealth billing FAQs and more.

News | Coronavirus

CMS's latest guidance for healthcare organizations on the new coronavirus

The HFMA editorial team will continuously post the latest announcements from the Centers for Medicare & Medicaid Services (CMS) related to the COVID-19 outbreak.

News | Coronavirus

Hospital provisions could end up in the next coronavirus bill passed by Congress

Congress is expected to enact another major coronavirus bill with hospital provisions by early July.