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Pandemic cripples US hospital revenue in January

John R. Fischer, Senior Reporter | March 09, 2021
Business Affairs
U.S. hospitals and healthcare systems still saw margins and revenue fall in January, despite a decrease in COVID-19 cases
Hospitals and health systems across the U.S. continued to see downward margins, volumes and outpatient revenues in January.

Key pandemic indicators peaked in early- to mid-January, only to taper in the second half of the month, according to the February issue of Kaufman Hall’s National Hospital Flash Report. "Hospitals and health systems have taken a variety of steps to improve performance around expenses, including rethinking their real estate needs as more staff work remotely, establishing new protocols for approving expenses, freezing or revisiting upcoming capital expenditures, and revisiting supply and purchased services contracts," Kaufman Hall Managing Director Lance Robinson, who leads Kaufman Hall’s Performance Improvement practice, told HCB News.

Federal coronavirus statistics began to fall in January, indicating a decline in COVID-19 cases and hospitalizations. Despite this, hospitals are still inundated with larger numbers of higher-acuity patients and seeing higher average lengths of stay. This has caused expenses to go up from the high costs of labor, drugs, PPE, and other equipment, including for COVID-19 cases. It also has caused a 25.4% rise in total expense per adjusted discharge, a 30.1% increase in labor expense per adjusted discharge, and a 24.4% non-labor expense increase, compared to the same time last year.

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These added expenses, combined with lower patient volumes, have hit margins and revenue hard, with Kaufman Hall’s hospital operating margin Index recording a median of -0.6% in January, without federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding, and -0.1% with it. The median operating Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) margin hit 4% without CARES and 4.8% with it. Total operating margins fell 46.1% from where they were in January 2020, as did operating EBITDA margin by 34.1% (not including federal aid).

Year-over-year drops in volumes occurred across most metrics due to patients avoiding or delaying care. Adjusted discharges fell 17.6% YOY, as did adjusted patient days by 8.3% and operating room minutes by 16.6%. The biggest drop was in ED visits at 24.7%. The sector has seen double-digit YOY declines each month since the start of the pandemic.

Inpatient volumes also fell 2.3% year-over-year after two months of increases due to more COVID-19 hospitalizations, while total inpatient revenue rose by just 1.3% YOY. Outpatient revenue fell from prior year levels for the ninth time in 10 consecutive months and was down 10.4% compared to January 2020. Lower outpatient revenues drove down Gross Operating Revenue (without CARES) by 4.8% YOY.

"A recent report prepared by Kaufman Hall for the American Hospital Association forecasts that total hospital revenue in 2021 could be down between $53 billion and $122 billion from pre-pandemic levels, depending on the pace of recovery of hospital volumes, progress in the administration of COVID-19 vaccines, and the degree and pace at which COVID-19 cases decline," said Erik Swanson, senior vice president of data and analytics at Kaufman Hall.

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