Hospital Profitability Declines Due to Weak Volumes, Revenues
Margins indicating hospital profitability, including EBITDA and operating, fell as volume and revenue performance weakened in November 2019.
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By - An analysis of November 2019 data from over 800 hospitals revealed weakened hospital profitability as margins significantly declined compared to the previous month.
Conducted by consulting firm Kaufman Hall, the National Hospital Flash Report from December 2019 detailed the drop in margins. The firm found that the operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was down 14.5 percent of 200.1 basis points (bps) year over year, while operating margins experienced a 21.3 percent or 208.1 bps decline.
Month over month, operating EBITDA margin dropped by 14.3 percent in November, or 215.6 bps, and operating margin decreased by 23.4 percent, or 239.2 bps.
Researchers attributed the drop in hospital profitability to weak performance across volumes and revenues, as well as higher-than-excepted expenses.
“Expense data from 2018 and 2019 illustrate the rough road hospitals and health systems face in trying to get a handle on the high costs of providing healthcare,” the analysis stated. “While year-over-year variances show dramatic fluctuations from month to month, overall expenses continue to creep steadily upward.”
In November 2019, both labor and non-labor expenses rose. The most recent National Hospital Flash Report showed that total expense per adjusted discharge increased by 2.7 percent year over year and 5.2 percent month over month.
Additionally, labor expense per adjusted discharge was up 4.9 percent year over year and 7.3 percent month over month, researchers reported. Non-labor expense per adjusted discharge also increased by 2.8 percent year over year and 5.1 percent month over month. In particular, purchased services saw the most significant increases across the board.
Growing expenses did not help hospital profitability improve in the face of declining volumes and revenues.
Specifically, the analysis found that volumes fell nationwide in November 2019, with month over month declines being the most significant. For example, operating room minutes experienced a 9.4 percent decrease, while adjusted discharges fell 8.5 percent and adjusted patient days dropped 7.6 percent.
Adjusted discharges remained steady year over year, while adjusted patient days were on target, increasing 0.5 percent year over year, researchers added.
Hospital revenue performance was also relatively weak in November 2019, the analysis stated. Net patient service revenue (NPSR) per adjusted patient discharge increased slightly by 0.3 percent year over year and 1.4 percent month over month. NPSR per adjusted patient day was also up modestly by 0.4 percent year over year but was flat month over month.
Hospitals also reported a 0.4 percent increase in inpatient/outpatient adjustment factor year over year. However, the factor decreased by 2.6 percent month over month.
On a positive note, bad debt and charity as a percent of gross declined slightly. The key performance indicator fell 0.4 percent year over year and 0.8 percent month over month.
Hospital profitability made have taken a negative turn in November, but experts expect profitability to pick back up in the new year.
“[W]e anticipate improvement from hospitals across the country and a positive start to 2020, with expected margin increases both month over month and year over year,” Jim Blake, publisher of the report and managing director of Kaufman Hall stated.
