Kaufman Hall: February Flash Report Shows Hospitals Facing Major Ongoing Financial Challenges
January was a difficult month in financial terms for U.S. hospitals and health systems, the Chicago-based Kaufman Hall consulting firm has found.
On Feb. 22, Kaufman Hall released its “National Hospital Flash Report Summary: February 2021.” As noted in a press release published to the firm’s website, “The first month of the new year proved challenging for hospitals and health systems nationwide as the effects of the pandemic continued to push margins, volumes, and outpatient revenues below prior year performance, according to the February issue of Kaufman Hall’s National Hospital Flash Report.” That report draws on data from more than 900 hospitals across the U.S.
“National COVID-19 metrics showed signs that the virus’ impacts may be easing following a devastating winter surge, with key pandemic indicators peaking in early to mid-January but tapering in the second half of the month. U.S. hospitals and health systems, however, face a long road to recovery,” the team of KaufmanHall analysts and experts wrote.
“The median Kaufman Hall hospital Operating Margin Index was –0.6 percent in January, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding,” the KaufmanHall researchers stated. “With the funding, it was –0.1 percent. The median Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin was 4.0 percent without CARES and 4.8 percent with CARES. Not including the federal aid, Operating Margin fell 46.1 percent (4.6 percentage points) and Operating EBITDA Margin was down 34.1 percent (4.2 percentage points) compared to January 2020.”
And the press release quoted Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report, as stating that “January marked a potential turning point in the pandemic, as we saw federal coronavirus statistics start to wane later in the month. While declining COVID-19 cases and hospitalizations are a very welcome sign, the pandemic continues to create a challenging situation for hospitals and health systems. We must remain vigilant in our fight against the virus, and in providing these vital institutions the support they need to move toward recovery,” Blake added.
Significantly, the report found, “Volumes fell year-over-year across most metrics as many healthcare consumers continued to avoid or delay care. Year-over-year, Adjusted Discharges fell 17.6 percent, Adjusted Patient Days declined 8.3 percent, and Operating Room Minutes fell 16.6 percent.” What’s more, “Emergency department visits, —which have seen double-digit year-over-year declines each month since the start of the pandemic in March 2020—again had the biggest drop compared to other volume metrics at 24.7 percent. Inpatient volumes fell 2.3 percent year-over-year following two months of increases from rising COVID-19 hospitalizations. Even so, hospitals continue to see higher Average Length of Stay due to higher acuity patients.”
And even as inpatient and ED volumes declined during 2020, “Outpatient Revenue fell below prior year levels for the ninth time in the past 10 months, down 10.4 percent compared to January 2020. The lower outpatient revenues pushed Gross Operating Revenue (not including CARES) down 4.8 percent year-over-year, while total Inpatient Revenue increased just 1.3 percent year-over-year.”
The report noted that “Inpatient volumes fell compared to January 2020—with Patient Days down 2.3 percent—suggesting a reversal following two consecutive months of YOY increases spurred by rising COVID-19 hospitalizations. Average Length of Stay (LOS) was the only volume metric to increase compared to 2020 levels, rising 12.6 percent YOY in January due to higher acuity patients requiring longer patient stays. Revenue results for the month were mixed. Outpatient Revenue dropped 10.4 percent YOY in January, marking the ninth time it has fallen below prior year levels in the past 10 months. Lower outpatient revenues drove Gross Operating Revenue (not including CARES) down 4.8% YOY, while Inpatient Revenue rose slightly at 1.3 percent YOY. Revenues increased once adjusted for January’s low volumes. Net Patient Service Revenue (NPSR) per Adjusted Discharge rose 19% and NPSR per Adjusted Patient Day was up 9.7 percent YOY.”
Further, the report noted, “Expenses continued to climb across most metrics as hospitals remain
encumbered by the high costs of labor, drugs, and personal protective equipment needed to treat higher acuity patients, including COVID-19 cases. Total Expense increased 4.5%, Total Labor Expense rose 6 percent, and Total Non-Labor Expense was up 2.4 percent YOY.
KaufmanHall found that “Total expenses continued to rise as hospitals bore the high costs of labor, drugs, personal protective gear, and other equipment needed to treat sicker patients, including COVID-19 cases. Total Expense per Adjusted Discharge rose 25.4 percent, Labor Expense per Adjusted Discharge jumped 30.1 percent, and Non-Labor Expense per Adjusted Discharge increased 24.4 percent compared to the same period last year.”
Looking at the broader frame around this, the report found that “In the broader economy, inflation and jobs data fell below expectations in January, as growth slowed considerably through the winter months. Stock values slid as trading driven by social media drew broad media attention, pushing the S&P 500 down 1.1 percent in January. The Federal Open Market Committee held steady at its January meeting and made no major changes to its guidance, keeping accommodative interest rates and asset purchase policies unchanged. While national CDC metrics show some signs that the country may be turning the corner on the pandemic, its repercussions for the healthcare industry will persist indefinitely. The January performance results reflect the continued burden on U.S. hospitals and health systems, and emphasize the importance of remaining vigilant in combatting the virusand moving these vital institutions toward recovery.”
