Hospital operating margins down nearly 20% since start of year due to COVID-19, report says

Hospitals and health system operating margins fell nearly 20% since the start of 2020 as COVID-19 continues to roil provider finances, according to a new report from Kaufman Hall.

The report released Monday found that hospital operating margins declined by 18.7% through October. But that figure balloons to nearly 70% without relief funding included in the CARES Act, underscoring the precarious financial position hospitals find themselves in eight months into the pandemic.

The consulting firm’s National Hospital Flash Report, which collects data from more than 900 hospitals, found that systems are struggling with declining patient volumes and higher costs for expenses.

It found that adjusted discharges fell 11.2% year-to-date and were down 9.3% in October compared to October 2019.

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Adjusted patient days also declined by nearly 8% year-to-date.

The biggest hit to volumes was in emergency room visits, which are down 16% year-to-date. The volumes were also down 16% in October compared to the same month in 2019.

However, emergency room volumes did increase by nearly 2% in October compared to September.

“The month-over-month increase was due in part to rising COVID-19 infections, which also contributed to a 7.6% month-over-month increase in discharges, reflecting higher numbers of inpatients,” officials said in a release.

The onset of COVID-19 back in March forced hospitals across the country to shutter elective procedures to preserve capacity to fight the virus. Patient volumes plummeted in March and April but started to rebound in the summer as shelter-in-place orders lifted.

However, hospital beds are starting to fill up again as the pandemic has surged across the country. Local and state governments are expected to reinstate social distancing policies and hospitals could try to delay procedures again.

For instance, Mayo Clinic’s hospitals in Northwest Wisconsin started to delay elective procedures back on Oct. 31 to preserve capacity.

"The next few months will be a grave period for our country, and for our nation's hospitals and health systems," said Jim Blake, a managing director at Kaufman Hall.

At the same time, hospitals continue to face higher expenses for vital supplies such as critical drugs and personal protective equipment.

The total expense per adjusted discharge rose 12% in October compared with the same month in 2019.

Labor expenses also rose 10% compared to 2019 last month as systems brought back furloughed employees. Systems have also faced higher expenses to hire new workers, including temporary staff.

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The strain has put a major hindrance on hospital operating margins.

Kaufman Hall’s median hospital operating index was negative 1.6% from January through October, but that doesn’t include funding from a $175 billion relief fund included in the CARES Act.

With the funding, the median margin was 2.4% year-to-date.

Kaufman Hall’s report comes as Congress returns from its break for Thanksgiving and talks are expected to resume on a new COVID-19 relief package that could include more help for hospitals.

Kaufman Hall issued a dire warning that the declines in margins in October are a sign of what is to come if the pandemic’s spread is not mitigated.

“The potential public health implications and financial impacts for our hospitals could be dire,” Blake said.