Hospitals' financial recovery stymied by July's COVID-19 resurgence, Kaufman Hall reports

Outpatient Sign over a Hospital Outpatient Services Entrance
Hospitals and health systems in the South and Midwest had front-row seats to the return of consumer hesitancy and, subsequently, lower outpatient volumes in July, Kaufman Hall reports. (Getty/EyeMark)

Hospitals and health systems’ economic recovery hit the brakes in July with mounting COVID-19 admissions, escalating expenses and early evidence that consumers are again postponing elective and outpatient care.

Per the latest monthly report from Kaufman Hall, countrywide margins and volumes remained below pre-pandemic numbers but dipped most severely in the South and Midwest, where COVID-19 has had the greatest impact. The firm said it expects these trends to continue in the coming months.

“Hospitals likely will face additional setbacks with continued spread of the delta variant and concerns over diminishing protection from the COVID-19 vaccines,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in a statement. “Not surprisingly, hospitals in the regions with the highest rates of the variant were most affected in July, and we expect those impacts to deepen in the months ahead.”

For now, many of the industry’s key financial metrics roughly maintained rates tracked by the group last July.

Kaufman Hall’s median hospital operating margin, for instance, reached 3.2% in July without including federal CARES aid and 4.1% with it. For June, those margins were 2.8% without and 4.3% with.

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The median operating earnings before interest, taxes, depreciation and amortization margin was 7.7% without federal aid and 8.9% with versus last month’s 7.4% and 8.8%.

National volumes were nearly flat month over month, up year to date (YTD) compared to 2020 and still generally below 2019, the group wrote.

Adjusted discharges, for instance, were flat over June, up 2.1% YTD over 2020 and down 9.2% YTD against 2019. Emergency department visits were up 4.1% month over month, up 5% from the same period in 2020 and down 13.1% YTD compared to 2019.

Notably, month-over-month operating room minutes fell 5.9% nationwide, “suggesting that some procedures are being postponed again as the delta variant takes hold,” Kaufman Hall wrote in the report.

The bright light for hospitals was revenue, which beat YTD totals during the last two years for the fifth straight month.

According to the report, YTD, gross operating revenue without CARES aid rose 8.3% over 2019 and 16.4% over 2020, inpatient revenue grew 3.7% over 2019 and 10.5% over 2020, and outpatient revenue increased 10% against 2019 and 21.6% over 2020.

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However, while month-over-month inpatient revenue rose 4.2%, gross operating revenue held even and outpatient revenue dropped 1.9% compared to June, “potentially reflecting the initial impacts of patients delaying elective care due to the delta variant,” Kaufman Hall wrote in the report.

Elevated expenses also remain a sticking point for hospitals. Expense per adjusted discharge was up 14.1% YTD over 2019 and down 0.2% (“essentially flat”) compared to last year. Total expense and total labor expenses both increased month over month by 0.5% and 2.8%, respectively.

Kaufman Hall’s reports incorporate data from more than 900 U.S. hospitals and fall in line with some of the regional warnings being voiced during recent health system earnings calls.

During its second-quarter investors call late last month, Universal Health Services, for instance, noted strong rebounds in net revenues thanks to returning patients but warned of increasing case counts in certain markets and the elevated staffing costs that would likely accompany them.

More recently, the Mayo Clinic said it saw an increase in overall admissions during the second quarter but noted that outpatient care volumes still held below pre-pandemic levels due to virus fears.