Hospitals close out 2020 with declining margins and higher expenses due to COVID-19

A financial chart
Kaufman Hall released a new report that detailed the financial performance for the hospital industry in 2020, showing lower margins. (Getty/Ca-ssis)

The hospital industry closed out last year with declining volumes and outpatient revenues due to record levels of COVID-19 hospitalizations, a new report from Kaufman Hall found.

The report released Tuesday found median hospital operating margin was down 4.9 percentage points for 2020 without federal relief funds and down 1.2 percentage points with the funding.

The operating earnings before interest, taxes, depreciation, and amortization for 2020 fell nearly 5 percentage points last year without any relief and down 1.2 points with it.

Kaufman Hall noted that things aren’t going to get better for the industry at the beginning of this year.

“The next few months are expected to be rough, as the nation’s hospitals and health systems cope with rising COVID-19 infections,” the report said.

COVID-19 hospitalizations increased by more than 30% since late November, the report said.

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But as hospitalizations soared due to the virus, outpatient volumes overall have declined as patients have become reluctant to seek some healthcare services. Several hospital systems have also had to postpone elective procedures again to preserve the capacity to fight the virus.

Operating room minutes fell 10.5% for 2020 and was down 3.9% in December compared to the same month in 2019.

Emergency rooms saw a massive decline with volumes falling 16.2% in 2020 compared to the year before.

Outpatient revenue fell nearly 6% last year and essentially was flat in December for hospitals, Kaufman Hall found.

Meanwhile, hospitals have seen “expenses mount as they bore the high costs of caring for COVID-19 cases and other high acuity patients,” the report said.

Kaufman found that expenses surged by nearly 7% for hospitals in 2020 compared to 2019. The biggest increase was in drug costs that rose 32% in 2020, and the second largest was supplies with 16.6%.

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Hospitals have had to pay more for critical equipment such as personal protective equipment and ventilators as well as drugs needed to fight the pandemic.

Labor expenses also rose by 5.4% as hospitals have had to pay more for additional staff to fight the virus and to compensate for staff burnout and losses due to infections.

Kaufman said that hospitals could face more strain in the coming months, especially amid reports of a new variant of the virus that is more transmissible.

“Hospitals already saw COVID-19 hospitalizations jump 6% between Dec. 31 and Jan. 7, likely due to infections from holiday related gatherings,” the report said.