Report: COVID Hospitalizations, Consumer Fears Driving Poor Hospital/Medical Group Performance

High COVID-19 hospitalization rates and consumer reluctance to visit healthcare facilities for non-urgent care continue to drive poor performance for the nation’s hospitals, health systems, and physician groups, according to a new report from Kaufman Hall, a healthcare management consulting firm.

The median hospital operating margin index closed a tumultuous 2020 at 0.3 percent, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding, according to the January National Hospital Flash Report. With the funding, it was 2.7 percent. The median 2020 Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin was 5.1 percent without CARES and 7.6 percent with CARES, the report noted.

Physician practices did see some gains from July to October 2020, but remained below 2019 levels on most performance measures, according to the latest data from the new quarterly Physician Flash Report. The median investment needed to subsidize inadequate physician revenues fell 9.5 percent for the quarter, but was up 0.5 percent year-over-year in October at $194,632 per physician.

The National Hospital Flash Report draws on data from more than 900 hospitals, while the new Physician Flash Report includes national data from Axiom’s Comparative Analytics from Syntellis Performance Solutions, which contains data on nearly 100,000 providers representing more than 100 specialties.

For hospitals, escalating expenses coupled with declining volumes and outpatient revenues continued to stress limited resources, the data showed. The median operating margin dropped 55.6 percent (4.9 percentage points) throughout 2020 without CARES, and was down 16.6 percent (1.2 percentage points) with CARES. In December, operating margin declined 18 percent (2.4 percentage points) year-over-year but increased 21.2 percent (2.2 percentage points) from November without CARES.

What’s more, rising COVID-related hospitalizations pushed inpatient volumes up for a second consecutive month in December. Patient days rose 4.5 percent compared to December 2019. Discharges, however, were down 4.3 percent year-over-year and down 7.3 percent year-to-date, indicating an increase in higher-acuity patients requiring longer care. The average length-of-stay rose 11 percent year-over-year and 6.6 percent from January through December 2020.

Emergency department (ED) visits, meanwhile, again saw the biggest volume declines, falling 16.2 percent for January through December and 22.6 percent year-over-year. Operating room minutes fell 10.5 percent over the calendar year as many patients delayed non-urgent procedures due to COVID-19 concerns.

Meanwhile, hospitals continued to see expenses mount as they bore the high costs of caring for high-acuity patients, including COVID-19 cases. Total expense per adjusted discharge and labor expense per adjusted discharge both increased 14.4 percent throughout 2020, and non-labor expense per adjusted discharge was up 14.2 percent.

“The remaining winter months will be critically challenging for our hospitals and health systems as COVID-19 hospitalizations climb and new, more contagious variants of the virus spread nationwide,” said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report. “COVID-19 will continue to create a volatile environment well into 2021.”

At the same time, it’s possible that the metrics are now taking a positive turn; U.S. COVID-19 hospitalizations have been declining since Jan. 12. On Jan. 4, the number of COVID patients hospitalized set a record, exceeding 125,000.

Hospitals and health systems also have been affected by year-over-year declines in volumes and revenues to physician practices, the Physician Flash Report found. Physician productivity—measured as Physician work Relative Value Units (wRVUs) per Full-Time Equivalent (FTE)—was 4.9 percent below 2019 levels in October, due to fewer patient visits and lower hospital diagnostic and procedural volumes compared to pre-pandemic levels.

New patient visits, which are key to growing physician practices, also declined year-over-year. Contributing factors include negative economic trends, competitive telemedicine offerings, and continued reluctance of some patients to visit physician offices. The lower productivity drove net revenue per physician FTE down 4.5 percent year-over-year compared to 2019.

“The increasing size of employed physician groups and the level of investment needed to support them continue to strain health system operating margins,” said Cynthia Arnold, senior vice president at Kaufman Hall. “While inpatient care and procedures offset those subsidies somewhat, long-term success will require joint system-physician leadership representation and robust data and analytics to address physician productivity issues.”