Hospital finances 'not out of the woods yet' as delta fuels high-acuity stays in August

hospital building with a sign that says outpatient
Kaufman Hall's latest monthly report suggests hospitals' margins and volumes have improved over 2020 but still fall short of 2019's performances. Longer stays from high-acuity delta variant cases have been yet another roadblock on the industry's road to recovery. (Getty/Mark Winfrey)

Hospitals’ August financials bowed under the weight of the COVID-19 delta variant, albeit not nearly to the extent they did during the widespread disruption of 2020, per Kaufman Hall.

According to the group’s latest monthly report on industrywide performance, upticks in new COVID-19 cases and hospital admissions maintained pressure on hospitals’ bottom lines. By most measures, the industry has yet to return to the margins and volumes it saw prior to the pandemic.

“Hospitals nationwide have faced significant recent setbacks in the wake of the delta variant,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement. “COVID-19 rates appear to be tapering in September, but the August data show we are not out of the woods yet, and hospitals face additional uncertainties as we move into the fall and winter.”

Kaufman Hall’s median hospital operating margin for August was 3.1% without CARES funding and 3.9% with the federal relief. This is down slightly; In July, those respective margins landed at 3.2% and 4.1%.

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Compared to 2019, year-to-date operating margins dropped 0.3 percentage points without CARES and gained 0.8 percentage points with CARES, according to the report. The difference was much stronger against last year’s turmoil, with Kaufman Hall reporting a 5.5 percentage point increase in year-to-date operating margin without CARES and a 2.5 percentage point increase with the funds.

These month-over-month and year-to-date trends were also reflected across hospitals’ nationwide volumes, according to the report.

Discharges, for instance, dropped 1% month over month, increased 2.6% from 2020 year to date and fell 9.5% compared to the same period in 2019. Adjusted discharges fell 3.8% month over month, were up 8.7% from 2020 year to date but still held 4.5% below the first eight months of 2019.

Emergency department visits had a bit more success, increasing 4.5% month over month, 7.3% from 2020 year to date and 7.3% compared to 2019 year to date.

Of note, however, was a broad increase in average length of stay as hospitals faced more high-acuity cases—up 4.4% month over month, 4.5% from 2020 year to date and 7.9% against 2019 year to date.

Regionally, increases across several volume measures were greatest across the South, according to Kaufman Hall.

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Revenues and expenses continued to rise monthly and in regard to 2020 and 2019.

Year-to-date gross inpatient revenue was up 11.8% from 2020 and 5.6% from 2019, while year-to-date gross outpatient revenue increased 20.3% from 2020 and 10% from 2019.

Total expenses gained 3.8% month over month, 8.6% versus the first eight months of 2020 and 8.7% from the same time in 2019. Total expense per adjusted discharge rose 6.9% month over month, 1.3% from 2020 year to date and 16.6% from 2019 year to date. Monthly increases in expenses per adjusted discharge were greatest for drugs (26.7%) and supply (15.3%) costs but were also substantial for labor (9.3%) and purchased services expenses (10%).

Kaufman Hall noted that much of the country is now seeing better news on the COVID-19 front, although vaccination hurdles and service cutbacks still introduce plenty of uncertainty going forward.

“While overall cases and new hospital admissions began to taper in the first half of September, hospital officials in areas hard hit by the delta variant said their organizations may need to ration care due to shortages in equipment, staffing and beds to accommodate high acuity patients,” the group wrote. “With cooler temperatures coming, vaccinations waning and increases in severe COVID-19 infections—especially among the unvaccinated—the continued pressures on the nation’s hospitals are unlikely to abate anytime soon.”

Kaufman Hall’s monthly reports incorporate data from more than 900 U.S. hospitals.

All told, the hospital industry is likely to see an estimated $54 billion in lost income throughout 2021, according to another recent joint analysis from Kaufman Hall and the American Hospital Association.