Hospital Revenues Rose, Margins Fell Before COVID-19 Outbreak

April 07, 2020 - Hospital revenues and volumes increased the month before President Trump declared the COVID-19 outbreak a national emergency, according to the latest hospital profitability data from consulting firm Kaufman Hall.

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The latest National Hospital Flash Report detailed the financial performance of over 800 hospitals in February 2020. The report found that most hospital revenue metrics increased both year over year and month over month, including net patient service revenue per adjusted discharge (3.0 percent and 0.7 percent, respectively).

Additionally, hospitals experienced higher volumes across all measures in February compared to the same period in 2019. Notably, discharges increased by 1.1 percent, adjusted discharges by 2.7 percent, and adjusted patient days by 6.3 percent. Average length of stay, emergency department visits, and operating room minutes also rose compared to February 2019.

Volumes in February 2020, however, did not surpass those in January 2020. That mixed with rising expenses resulted in overall margin declines by the end of the period, the report found.

Specifically, the operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin fell by 92.7 basis points (bps) year over year and was 105.2 bps below budget. Hospital operating margin was also down by 73.2 bps year over year and was 92.4 bps below budget.

Hospital profitability has not been as robust as previous periods, but financial performance is about to look a lot different because of COVID-19.

“Looking back at February data is like looking at the calm before the storm. The second month of the year saw margins continue to fall following moderate declines in January, due in large part to rising expenses,” Jim Blake, managing director of Kaufman Hall, stated in the report. “Next month’s report will be quite different, reflecting the initial impacts of the virus’ rapid spread across the country.”

Hospitals and health systems have already started to see key financial metrics take a turn for the worse as the organizations were forced to cancel or postpone services that normally drive revenue. Many providers have also experienced a massive surge in COVID-19 patients, which has put a strain on workforce, supply levels, and overall operations.

The financial outlook for the entire healthcare industry is bleak as the US approaches what experts predict to be the peak of the novel coronavirus’ impact on healthcare resources.

But according to predictions from Kaufman Hall, hospitals may see margin increases in April as demand for care continues to rise due to the further spread of COVID-19.

Operating EBITA margin could increase by 3.2 percent or 43.7 bps year over year, and 21.5 percent and 242 bps month over month, the consulting firm predicted. Operating margin is also projected to rise by 5.8 percent or 46.1 bps year over year, and 34.6 percent or 242.6 bps month over month.

Large hospitals with 500 beds or more are likely to see the largest year-over-year increase at 8.0 percent, while hospitals with 100 to 199 beds can expect the greatest month-over-month increase at 38.0 percent, the firm estimated.

The smallest hospitals in the country, however, will not see these improvements, according to the projections. Hospitals with fewer than 25 beds are likely to see operating EBITDA margins decrease, with Kaufman Hall projecting an average 12.0 percent decrease year over year and a 1.0 percent decrease month over month.

But COVID-19 is unpredictable, and with that so is financial performance. Many hospitals are shifting their focus to COVID-19 care, which will have lasting financial consequences, such as excessively high supply costs and changing revenue sources. At the same time, expenses are already significantly rising as hospitals reconfigured their operations in response to the virus.