Hospitals' volume, margin gains held in check by rising costs in June, Kaufman Hall reports

A picture of a hospital corridor
Hospitals' financial recovery marched forward in June, generally improving over the first half of 2020 but the rest of the year could be dicier as recent COVID-19 cases raise "new uncertainties" for providers. (sfam_photo/Shutterstock))

Hospitals made gains in margins and admissions throughout June, yet the recovery still lags behind what the provider organizations were seeing prior to the onset of COVID-19, according to the latest monthly report from Kaufman Hall.

Hospitals' expenses saw improvements compared to the height of the pandemic, but, again, remain substantially worse off compared to 2019, the consulting group wrote.

Although these and other numbers generally paint an encouraging sign of hospitals’ financial recovery, Kaufman Hall warned that the “increasing spread of the Delta variant and inconsistent vaccination rates are raising new uncertainties” for the industry.

“Rising expenses are contributing to relatively tight hospital margins, even as revenues and volumes continue to show signs of improvement … and the increasing spread of the Delta COVID-19 variant may stifle further recovery in the coming months,” Erik Swanson, senior vice president of data and analytics with Kaufman Hall, said in a statement.

Without COVID-19 relief funding, Kaufman Hall’s median hospital operating margin index hit 2.8% in June, up from May’s 2.6%. The latest operating margin index represents an 89.5% year-to-date increase over the first half of 2020 but a 10.3% decrease from the top of 2019.

RELATED: Hospitals' volumes, margins recovery still lags behind early 2019 numbers, Kaufman Hall says

With the funding, this month’s operating margin index rose to 4.3% from May’s 3.5%, according to the report. This translates to a 48.7% year-over-year increase and a 3.7% decrease from the first half of 2020 and 2019, respectively.

This trend extended to patient volumes as well, the group wrote. Adjusted discharges were up 2.1% month over month, up 10.1% year-to-date compared to 2020 and down 4.4% against 2019. Emergency department visits increased 4% from May and 3.2% from last year but dipped 14.8% year over year from 2019.

Adjusted patient days and operating room minutes, however, saw sustained increases even from 2019, the group found. The former was up 2.1% month over month, 14.7% year-to-date from 2020 and 1.5% from 2019, while the latter grew 7.5% month over month, 20.4% from 2020 and 2.6% against 2019.

Hospitals’ gross operating revenues were up month over month (4%), year-to-date from 2020 (18.2%) and 2019 (7.9%). Kaufman Hall noted that this was largely due to the substantial jump in outpatient revenues, which grew 6.8% from May, 24.3% year-over-year from 2020 and 9.6% from 2019.

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Despite the volume and revenue gains, the hospitals’ margins gains were held in line by an increase in expenses, the group found.

Total expense per adjusted discharge inched up 0.3% month over month in June, due primarily to an increase in non-labor expenses. While this represents a decline of 2.6% compared to 2020, when hospitals’ expenses were driven upward by large-scale personal protective equipment purchases and other COVID-19 costs, it’s still a 14.8% year-to-date jump from 2019.

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

The latest monthly snapshot paints a similar picture of hospitals’ recovery as the quarterly earnings shared by for-profit chains over the past few weeks. Big names like HCA and UHS told investors that volumes and profits recovery broadly outstripped expectations during the second quarter of 2021, but were sometimes more cautious when it came to the impacts of the resurgence of COVID-19 on their expenses.