Hospital operating margins down 28% through July: report

Money and medicine
According to the latest edition of Kaufman Hall’s National Hospital Flash Report, hospital operating margins were down 28% in the first seven months of the year compare to the same period last year. (Getty/holwichaikawee)

While there have been some early signs of recovery, uncertainty and volatility caused by the COVID-19 pandemic continued to rock hospital financials through the end of July, a new report says.

According to the latest edition of Kaufman Hall’s National Hospital Flash Report, which is based on July data from more than 800 hospitals, operating margins were down 28% in the first seven months of the year compared to the same period last year.

But when federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act is removed from that equation? Operating margins were down 96% through the first seven months of the year compared to the same period a year earlier, the report says.

"That’s extremely meaningful and it paints a rather dire situation, especially if you look at it without that CARES Act funding," said Erik Swanson, vice president at Kaufman Hall. "Many organizations are still at negative margins on a year-to-date basis. And really that comes from the devastation for many these organizations in March and really into April."

There has been some recovery since. For example, operating margins fell 2% in July compared to the same month a year earlier, not including CARES Act funding.

"What we’ve also seen since April is a slow recovery over time in particular with volumes and revenues," Swanson said. "However, it continues to be slow and it hasn’t been enough to make up for the impacts that were received in March and April. And certainly it’s not on track to bring hospitals back on track by the end of the year back up to the normal operating margins."

RELATED: July was a bright spot for hospital volumes after rough June, Kaufman Hall reports

Among other findings in the report:

  • Adjusted discharges are down 13%, adjusted patient days are down 11% and emergency department volumes are down 17% in the period between January and July, compared to the first seven months of 2019.
  • While some hospitals have seen an uptick in surgery volumes due to a backlog in demand from the shutdown of non-urgent procedures in March and April, operating room minutes are still down 15% in the first seven months of the year compared to the same period in 2019.
  • Gross operating revenues have fallen 8% in the first seven months of the year with inpatient revenue down 5% and outpatient revenue down 11% compared to the same period last year (and not including CARES Act funding). At the same time, total expense per adjusted discharge has jumped 16%, and labor expense per adjusted discharge role 18% in the first seven months of the year compared to the same period of 2019.
  • From June to July, hospital operating margins were up 24% over the same period in 2019. That is likely due to a backlog in demand resulting from the shutdown of many non-urgent services in the early months of the pandemic, the report said.