Kaufman Hall: February Hospital Margins 'Slim to Negative'

As COVID-19 volumes declined in February, hospitals saw new admissions, margins and revenues fall.

Despite the rising numbers of vaccinations and signs that the COVID-19 pandemic may be receding, the nation's hospitals continued to struggle with thinning margins in February, Kaufman Hall reports.

"February hospital margins remained slim to negative," KH said in its National Hospital Flash Report for March. "Margins were affected by continued low outpatient volumes combined with declining inpatient volumes following January’s record-high COVID-19 hospitalizations."

Hospitals saw record numbers of COVID-19 patients in January but as those pandemic-related volumes declined in February, they weren't replaced by other admissions, and so hospitals saw expenses rise while margins, volumes, and revenues fell below levels seen in February 2020, KH said.

"As COVID-19 metrics begin to wane and much of the country turns to talk of a possible forthcoming end to the pandemic, hospitals and health systems remain in a tenuous position," KH said. "Organizations continue to bear the high costs of fighting the unpredictable virus as many non-COVID patients remain reluctant to seek outpatient services."

KH cited COVID Tracking Project data showing that COVID-19 hospitalizations were down to 47,352 on February 28, the lowest since late October 2020. Centers for Disease Control and Prevention data show that new daily admissions of infected patients dropped 74% from a high of 18,009 on January 5 to 4,772 on February 28. At the same time, the number of new cases continued to fall in February as vaccinations surged. As of March 16, more than 39 million Americans were fully vaccinated.

Among the KH metrics for February:

• Not counting federal aid through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the median Kaufman hall hospital Operating Margin Index was –0.5%. With the funding, it was 0.4%."
   
• Median Operating EBITDa Margin was 4 .1% without CARES and 5.4% with CARES.
   
• Operating Margin fell 30.8% (3 percentage points) from February 2020 to February 2021 without the federal aid, while Operating EBITDa Margin was down 22.6% (3.2 percentage points).
   
• With CARES, Operating Margin fell 23.4% (2.6 percentage points) and Operating EBITDA Margin fell 18.3% (2.4 percentage points) year-over-year.
   
• Year-to-date, Operating Margin declined 48% (4.2 percentage points) without CARES and 36% (3.3 percentage points) with CARES.
   
• Adjusted Discharges fell 16.8% YTD and 13.8% YOY, Adjusted Patient Days declined 8.8% YTD and 8.3% YOY, and Operating Room Minutes fell 13.0% YTD and 6.9% YOY.
   
• Emergency Department Visits—which have seen double-digit declines every month since the start of the pandemic—continued to see the largest volume declines, down 25.6% YTD and 26.8% YOY in February.
   
• Average Length of Stay was up 8.5% YTD and 7.3% YOY, but fell 3.4% compared to January, reflecting a decline in high acuity COVID-19 patients.
   
• February revenue results varied, with declines in overall revenues but increases in adjusted revenues. Gross Operating Revenue (not including CARES) dropped 5.2% YTD and 4.6% YOY.
   
• Continued declines in outpatient visits drove Outpatient Revenue down 8.8% YTD and 5.5% YOY, falling below prior-year levels for the tenth time in 11 months.
   
• Inpatient Revenue was down 1.3% YTD and 4.4% YOY. After adjusting for the month’s low volumes, Net Patient Service Revenue (NPSR) per Adjusted Discharge rose 16.9% YTD and 14.9% YOY, and NPSR per Adjusted Patient Day rose 7.1% YTD and 7.6% YOY.
   
• Total expenses showed relatively low increases but jumped significantly once adjusted for volume levels. Total Expense was up 2.6% YTD and just 1.1% YOY.
   
• Total Labor Expense rose 3.9% YTD and 1.0% YOY, and Total Non-Labor Expense increased 1.2% YTD and 2.2% YOY. Total Expense per Adjusted Discharge, however, was up 24.4% YTD and 19.6% YOY. Labor Expense per Adjusted Discharge increased 25.4% YTD and 18.8% YOY as hospitals maintained elevated staffing levels.
   
• Non-Labor Expense per Adjusted Discharge rose 22.1% YTD and 20.7% YOY, driven in part by a 29.1% YOY increase in Drug Expense per Adjusted Discharge and a 24.3% YOY increase in Purchased Service Expense per Adjusted Discharge.

KH warned that February's metrics "illustrate the ongoing uncertainty stemming from a devastating pandemic."

"The pace of these dynamics will vary over time, impacting volumes, revenues, and expenses. as many push for a rapid return to "normal," hospital and health system leaders face a hard reality that there may never be a return to the old normal," KH said.

"The pandemic likely will have long-lasting repercussions on patient behavior, volumes, and the role of telehealth in an evolving healthcare landscape."