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Hospital Operating Margins Rose 8.1% in September

Analysis  |  By Jack O'Brien  
   October 27, 2020

When CARES Act funding is factored in, operating margins rose 15% year-over-year, the monthly report found.

Hospital operating margins rose 8.1% year-over-year in September as month-to-month fluctuations continue to occur due to the ongoing COVID-19 pandemic, according to Kaufman Hall's latest Flash Report released Tuesday morning.

Despite "suppressed volumes," hospitals have benefited from the average length of stay increasing 2.3% year-over-year, net patient service revenue (NPSR) per adjusted discharge increasing 10.7% year-over-year, and NPSR per adjusted patient day increasing 9.4% year-over-year.

Related: Hospital Operating Margins Fell 18% in August

The report added that hospitals have benefited from the "20% Medicare COVID-19 add-on, suspension of the -2% sequestration adjustment, and lower bad debt."

Still, provider organizations remain vulnerable to the market uncertainties caused by the outbreak as the year-to-date median hospital operating margin is at 2.7%, well behind last year's performance.

This metric includes funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which remains an important element of the financial picture for hospitals.

Without that stimulus package, the year-to-date median hospital operating margin is negative 1.9%.

Related: Despite Pandemic, Healthcare M&A Activity Stays Apace

Similarly, when CARES Act funding is factored in, the September operating margins rose 15% year-over-year, the monthly report found.

With CARES Act funding, the hospital operating EBITDA margin rose 5.4% year-over-year, but only increased 2.9% without the stimulus.

"The first seven months of the pandemic have created a tenuous situation for our nation’s hospitals, with year-to-date performance falling significantly below 2019 levels," Jim Blake, a managing director at Kaufman Hall, said in a statement.

The Flash Report is the latest Kaufman Hall analysis of the financial standing of hospitals and health systems.

Last week, the firm released a survey that found almost three-quarters of hospital executives said they are "extremely" or "moderately" concerned about the financial viability of their respective organizations in the absence of a vaccine for COVID-19.

One-third of respondents experienced year-over-year operating margin declines exceeding 100% during Q2 2020, though volumes in most service areas have begun to recover slowly. The only service area that a majority of respondents said had recovered to more than 90% of pre-pandemic levels was oncology.

Related: Almost 75% of Hospital Finance Execs Concerned About Financial Viability Without COVID Vaccine

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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