Kaufman Hall: Delta Variant Is Causing Major Troubles for Hospital Margins
Rising COVID-19 infection rates and hospitalizations from the hyper-transmissible Delta variant continued to strain U.S. hospitals and health systems in August, according to the Chicago-based Kaufman Hall consulting firm’s latest, September “National Hospital Flash Report.” According to a Sep. 27 press release announcing the publication of the report, “Hospital margins remained below pre-pandemic levels from 2019, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Most volume metrics also were down versus pre-pandemic levels, but up compared to lows seen in the first eight months of 2020, when COVID-19 mitigation efforts drove significant declines in overall demand. However, Average Length of Stay increased versus 2019 and 2020, as hospitals saw a rise in high-acuity cases—including more severe COVID-19 cases—requiring longer stays. Meanwhile, expenses continued to climb and revenues rose for a sixth consecutive month.”
“Hospitals nationwide have faced significant recent setbacks in the wake of the Delta variant,” said Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said, in a statement contained in Monday’s press release. “COVID-19 rates appear to be tapering in September, but the August data show we are not out of the woods yet, and hospitals face additional uncertainties as we move into the fall and winter.”
As the report noted, “The median Kaufman Hall Operating Margin Index was 3.1 percent in August without CARES funding, and 3.9 percent with the aid. The median change in Operating Margin was down 2.9 percent year-to-date versus pre-pandemic levels in the first eight months of 2019, not including CARES. With CARES, the median change in Operating Margin rose 11.2 percent versus January-August 2019. Revenues and expenses also rose year-to-date versus 2019, due in part to the increase in higher acuity patients. Gross Operating Revenue was up 9.6% compared to 2019, while Total Expense per Adjusted Discharge was up 16.6% over the same time frame,” the report noted.
Key volume metrics in the latest report versus January-August 2019 include:
• Adjusted Discharges: Down 4.8 percent
• Emergency Department Visits: Down 11 percent
• Operating Room Minutes: Down 1 percent
• Average Length of Stay: Up 7.9 percent
The National Hospital Flash Report draws on Syntellis Performance Solutions data from more than 900 hospitals.
The report noted that “COVID-19 cases and hospitalizations continued to surge throughout August after spiking more than 480 percent and more than 250 percent in July, respectively. The seven-day moving average of new cases jumped 80.8 percent from 88,143 on August 1 to 159,333 on August 31, according to the Centers for Disease Control and Prevention (CDC). The 7-day moving average of new hospital admissions rose 72.3 percent from 7,105 on August 1 to 12,243 by month’s end. Vaccinations continued to stagger by comparison, with the number of fully vaccinated individuals growing just 5.6 percent over the course of the month to about 176 million by August 31.”
Still, given the challenges of high costs and high acuity, the report noted, “Hospital operating margins remained low. The median Kaufman Hall Operating Margin Index was 3.1 percent in August, not including federal CARES funding. With the aid, it was 3.9 percent, which was down 11.8 percent from Key Observations pre-pandemic levels. Compared to before the pandemic in the first eight months of 2019 and without CARES, the median change in Operating Margin was down 2.9 percent, and Operating EBITDA Margin was down 6.1 percent year-to-date (YTD). With CARES, the median change in Operating Margin rose 11.2 percent and the median change in Operating EBITDA Margin was up 3.1 percent YTD versus January-August 2019.”
That said, the report noted that, “Compared to losses in the first eight months of 2020, however, Operating Margin jumped 83.1 percent YTD and Operating EBITDA Margin rose 57.1 percent YTD, not including CARES. With CARES, Operating Margin was up 33.6 percent YTD and Operating EBITDA Margin was up 16.3 percent YTD versus 2020. Regions with higher rates of infections were most affected.”
Operating margins varied by region. “Hospitals in the South continued to see the biggest year-over-year drop with Operating EBITDA Margin (without CARES) down 14 percent, followed by the West which decreased 11 percent year-over-year,” the report noted. “Hospital volumes remained down across key metrics compared to pre-pandemic levels but above 2020 performance. Adjusted Discharges were down 4.8 percent YTD compared to the first eight months of 2019 but up 8.7 percent YTD versus 2020. Emergency Department (ED) Visits dropped 11 percent YTD versus 2019 but rose 7.3 percent YTD compared to the first eight months of 2020. Operating Room Minutes dropped just 1 percent YTD compared to 2019 but rose 15.1 percent YTD versus January-August 2020.”
