High Covid-19 Inpatient Volumes, Spooked Consumers, Stress Provider Margins

The coronavirus pandemic wreaked bottom line havoc on the nation's healthcare delivery system in 2020 and that trend is expected to continue well into 2021.

Kaufman Hall's latest National Hospital Flash Report finds that the elevated COVID-19 inpatient volumes, coupled with spooked consumers unwilling to visit care venues for non-urgent services, completed 2020's months-long trend of declining operating margins for physicians and hospitals.

"The remaining winter months will be critically challenging for our hospitals and health systems as COVID-19 hospitalizations climb and new, more contagious variants of the virus spread nationwide," said Jim Blake, a managing director at Kaufman Hall and publisher of the National Hospital Flash Report.

"COVID-19 will continue to create a volatile environment well into 2021," he said.

The report notes that, for hospitals, "escalating expenses coupled with declining volumes and outpatient revenues continued to stress limited resources."

"The median Operating Margin dropped 55.6% (4.9 percentage points) throughout 2020 without Coronavirus Aid, Relief, and Economic Security (CARES) Act funding and was down 16.6% (1.2% percentage points) with CARES," the report said.

"In December, Operating Margin declined 18% (2.4 percentage points) year-over-year but increased 21.2% (2.2 percentage points) from November without CARES," KH said.

KH's quarterly Physician Flash Report reported similarly that performance metrics remained below 2019 levels on most measures.

"The increasing size of employed physician groups and the level of investment needed to support them continue to strain health system operating margins," said Cynthia Arnold, senior vice president at Kaufman Hall.

"While inpatient care and procedures offset those subsidies somewhat, long-term success will require joint system-physician leadership representation and robust data and analytics to address physician productivity issues," Arnold said.

The median investment to subsidize inadequate physician revenues fell 9.5% in Q4 but was up 0.5% year-over-year in October at $194,632 per physician.

Physician work Relative Value Units per Full-Time Equivalent —was 4.9% below 2019 levels in October, because of fewer patient visits and lower hospital diagnostic and procedural volumes.

New patient visits also fell year-over-year owing to a bad economy, competition from telemedicine, and the ongoing dread of some patients to visit physician offices. The lower productivity drove Net Revenue per Physician FTE down 4.5% year-over-year compared to 2019, KH said.

The KH analyses also found that:

• The median hospital Operating Margin Index closed a tumultuous 2020 at 0.3%, not including federal CARES Act funding, according to the January. With the CARES funding, it was 2.7%.
   
• The median 2020 Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin was 5.1% without CARES and 7.6% with CARES.
   
• Patient Days rose 4.5% compared to December 2019, thanks to Covid. Discharges were down 4.3% year-over-year and down 7.3% year-to-date, signaling an increase in higher acuity patients.
   
• The Average Length of Stay rose 11% year-over-year and 6.6% from January through December 2020.
   
• Emergency Department Visits volumes fell 16.2% for January through December and 22.6% year-over-year.
   
• Operating Room Minutes fell 10.5% over the calendar year as many patients delayed non-urgent procedures due to COVID-19 concerns.
   
• Lower volumes pushed revenue declines, particularly for outpatient services. Gross Operating Revenue (not including CARES aid) dropped 3.1% in 2020, while Outpatient Revenue fell nearly 6%. Inpatient Revenue was essentially flat, rising just 0.3% for the year.
   
• Total Expense per Adjusted Discharge and Labor Expense per Adjusted Discharge both increased 14.4% throughout 2020, and Non-Labor Expense per Adjusted Discharge was up 14.2%.