August Was a Setback for Hospital Financial Recovery, Report Shows

September 29, 2020 - Hospital financial recovery stalled in August after three months of moderate month-over-month margin growth, healthcare consulting firm Kaufman Hall reports.

The firm’s September National Hospital Flash Report found that, in August, hospital operating margin fell by 18 percent year-over-year, 12 percent month-over-month, and was 8 percent below budget without factoring in federal aid from the CARES Act. With the aid, the operating margin was down 3 percent year-over-year and 28 percent month-over-month, but 3 percent above budget for the month.

While margins have consistently been below 2019 levels since the start of the COVID-19 pandemic, Kaufman Hall stated, the declines in August represent a setback in hospital financial recovery.

Hospitals experienced moderate month-over-month gains in the three months leading up to August even though margin results were consistently below 2019 levels, the report showed.  

Overall, operating margin was down 89 percent since the start of the year compared to the first eight months of 2019 without federal aid from the CARES Act.

“While the August numbers are concerning, they are not surprising,” Jim Blake, managing director at Kaufman Hall, said in a statement to RevCycleIntelligence. “The latest results clearly illustrate the long road ahead for hospitals as they weather the ups and downs of a difficult recovery.”

Low volumes and revenues contributed to the declines observed in August, according to the report.

Nationwide, hospitals saw volumes fall across most measures in August, with emergency department (ED) visits being hit particularly hard that month.

ED visits saw the greatest year-over-year declines in August, Kaufman Hall reports, with a 16 percent decline compared to both 2019 performance and to budget. Visits were also down 16 percent year-to-date and 2 percent month-over-month.

The report also found declines in adjusted discharges of 13 percent year-to-date, 12 percent year-over-year, and 3 percent month-over-month.

Additionally, adjusted patient days were down by 10 percent year-to-date and 6 percent year-over-year, but remained flat month-over-month.

With such low performance on most volume metrics, hospitals also experienced revenue declines in August. Not including federal aid, gross operating revenue was down 2 percent year-over-year and 4 percent below budget. Year-to-date, the revenue fell by 7 percent.

Fewer outpatient visits largely drove the revenue declines in August, with outpatient revenue down 10 percent year-to-date, Kaufman Hall stated. Inpatient revenue fell by 4 percent over the same period.

Meanwhile, hospital expenses per patient continued to rise in August. The report found that, per adjusted discharge, total expense and labor expense were both up 17 percent year-to-date. Both metrics also experienced growth in August, jumping by 3 percent and 4 percent month-over-month, respectively.

Non-labor expenses per adjusted discharge were also up by 15 percent year-to-date compared to the same period the previous year and increased 14 percent year-over-year and 1 percent month-over-month.

Additionally, hospitals saw increases in supply expense per adjusted discharge by 11 percent, drug expense per adjusted discharge by 16 percent, and purchased service expense per adjusted discharge by 19 percent year-to-date.

Hospital financial recovery may not be a straight shot as communities continue to struggle with containing the virus. But setbacks should not sideline healthcare leaders, Blake stressed.

“No other public health crisis in recent history has proven the importance and necessity of our nation’s hospitals like COVID-19,” Blake stated in the report. “We must ensure the long-term viability of these vital institutions.”

Federal aid has been a major source of financial support for hospitals during the pandemic, as confirmed by Kaufman Hall’s latest report. But hospitals may need more to ensure financial stability coming out of the pandemic.

In July, the American Hospital Association, American Medical Association, and American Nurses Association called on top policymakers to allocate an additional $100 billion in direct funding to healthcare providers as part of the next COVID-19 relief package. At the time, new COVID-19 hot spots were emerging in Texas, Florida, California and Arizona.

More recently, AMGA urged Congress to replenish Provider Relief Funds before the flu season hits. The group also asked for more favorable tax policies, repayment reforms for reimbursements advanced at the start of the pandemic, and permanent telehealth coverage expansions.

Congress has yet to pass another comprehensive COVID-19 relief package.