Kaufman Hall Reports: Hospitals, MD Groups Beginning to Recover Financially
After numerous months of struggling financially, U.S. hospitals and physician groups were starting to turn things around in March, according to two new reports from the Chicago-based Kaufman Hall consulting firm.
A press release posted to the company’s website on Monday, May 2 began thus: “After a rocky start to 2022, many U.S. hospitals, health systems, and physician groups saw early evidence that performance may be stabilizing as outpatient volumes and revenues improved in March, according to new issues of Kaufman Hall’s National Hospital Flash Report and Physician Flash Report. The results provide some hope for healthcare providers following the devastating surge of the Omicron COVID-19 variant last winter. The reports also highlight ongoing challenges for providers, including mounting inflation, national labor shortages, and global supply chain issues. For hospitals and health systems, actual operating margins were negative for a third consecutive month. The median Kaufman Hall year-to-date Operating Margin Index was -2.43 percent in March, though the median change in Operating Margin rose 32.7 percent from February to March.”
“Hospitals experienced a resurgence in outpatient care and revenues in March, as many patients sought care they delayed during the Omicron surge,” Erik Swanson, a senior vice president of Data and Analytics with Kaufman Hall, said in a statement contained in the press release. “Declining COVID-19 case rates also meant hospitals had fewer high-acuity patients. While the road to recovery remains long for many hospitals, these trends indicate some pressures of the pandemic may be lifting.”
According to the press release, “Outpatient volumes improved and the pace of inpatient volume increases slowed. Adjusted Patient Days were up 12.5-percent month-over-month and 4.2-percent year-over-year, while Adjusted Discharges rose 18 percent month-over-month. Average Length of Stay was down 6.2 percent from February, as fewer patients required longer hospital stays. Operating Room Minutes rose 17.3-percent month-over-month, as surgery patients continued to return after the Omicron surge delayed many nonurgent procedures. Higher volumes contributed to higher revenues in March. Month-over-month, Gross Operating Revenue rose 14 percent and Outpatient Revenue rose 16.1 percent. Adjusted expenses remained up compared to prior years, but decreased month-over-month as volume growth outpaced expense growth in March.”
What’s more, “For physicians, signs of improvement included increased physician productivity, compensation, and revenues in the first quarter as practices saw higher patient volumes compared to the last quarter of 2021. Volume increases also contributed to ongoing expense hikes and higher investments/subsidies needed to support physician practices. For the first time in two years, the median Investment/Subsidy per Physician Full-Time Equivalent surpassed levels seen during the start of the pandemic. The metric was up 1.5% compared to Q1 2020 at $288,227 in Q1 2022.”
Significantly, “Physician productivity rose across all measures, with Physician work Relative Value Units (wRVUs) per FTE up 7.4 percent quarter-over-quarter, 15.4 percent year-over-year, and 20.2 percent compared to Q1 2020. The increased productivity helped to push physician compensation to its highest level in two years. Physician revenues also rose with higher patient volumes and increased productivity. Expenses continued to grow due to higher volumes, inflation, and a competitive labor market. Total Direct Expense per Physician FTE (including APPs) rose to $946,602 for the quarter, up 12.9 percent from the first quarter of 2020.”
“Physician subsidies and expenses both reached two-year highs in the first quarter, and both metrics appear to be on an upward trajectory for the foreseeable future,” said Matthew Bates, managing director and Physician Enterprise Service Line lead with Kaufman Hall. “At the same time, per-physician productivity and revenues had sizable increases. Physician leaders must continue to closely monitor these trends and identify opportunities for improvement to manage the cost curve going forward.”
The National Hospital Flash Report noted that “COVID-19 cases and hospitalizations declined throughout the month. The 7-day moving average of new cases decreased 53.3 percent from March 1 to 25,559 on March 31.1 The 7-day moving average of new daily admissions dropped 64.9% over the same period, to 1,506 by month’s end. Even so, the March performance results suggest a long road ahead as healthcare providers struggle with inflation, national labor shortages, and the ongoing impacts of COVID-19 two years after the March 2020 start of the pandemic. Actual hospital margins were negative for a third consecutive month. The median Kaufman Hall year-to-date Operating Margin Index was -2.43 percent in March, up from -3.99 percent in February. Margins Hospital margins improved month-over-month and compared to all-time lows seen in March 2020, when hospitals were hit with widespread shutdowns and halting of elective procedures early in the pandemic. The median change in Operating Margin rose 32.7 percent from February to March and 85.6 percent compared to March 2020. The median change in Operating EBITDA Margin increased 26.7 percent month-over-month and 98.1 percent versus March 2020. Year-over-year (YOY), however, the median change in Operating Margin was down 48.7 percent and the median change in Operating EBITDA Margin declined 37.8 percent compared to March 2021.
The National Hospital Flash Report noted that “Higher volumes contributed to revenue increases in March. Gross Operating Revenue rose 14 percent month-over-month, 6.6 percent YOY, and 35.1 percent compared to March 2020. Outpatient Revenue had the largest increase as COVID-19 mitigation efforts lifted. Outpatient Revenue was up 16.1 percent compared to February, 2.7 percent YOY, and 34.9 percent versus the first month of the pandemic in March 2020. Inpatient Revenue increased 5.4 percent month-over-month and 15.8 percent compared to March 2020, but was up just 0.3 percent YOY. Expenses Hospitals saw some improvements in adjusted expenses month-over-month as volume growth outpaced expense growth in March, but labor shortages, supply chain issues, and inflation continue to push expenses up relative to prior years. Compared to February, Total Expense per Adjusted Discharge and NonLabor Expense per Adjusted Discharge both decreased 9%, and Labor Expense per Adjusted Discharge was down 8.3 percent. Compared to the past two years, however, Total Expense per Adjusted Discharge rose 10.8 percent YOY and 6.1 percent versus March 2020. Labor Expense per Adjusted Discharge was up 12.6 percent YOY and 8.7 percent versus March 2020. NonLabor Expense per Adjusted Discharge rose 6.4 percent compared to March 2021 and 2.7 percent compared to the pandemic’s first month. Non-Operating Inflation registered at 8.5 percent year-over-year in March, its highest rate since 1981. The increase was driven by ongoing supply chain problems, soaring demand, and rising energy prices. The U.S. labor market remained tight in March as unemployment dropped to a two-year low of 3.6 percent and non-farm payrolls added 431,000 jobs. The Federal Reserve increased rates by 25 basis points (bps) in March, its first increase since 2018. The Federal Open Market Committee (FOMC) projects six more rate increases in 2022 followed by three more in 2023. Minutes from the FOMC’s March meeting signal support for one or more 50 bps increases if inflation remains high. The Fed [Federal Reserve System] also indicated it will begin reducing its balance sheet by $95 billion per month, likely beginning in May.”
The National Hospital Flash Report draws on data from more than 900 hospitals, and the Physician Flash Report draws on data from nearly 100,000 providers representing more than 100 specialties. Data from both reports come from Syntellis National Hospital Flash Report Performance Solutions.
