Kaufman Hall: Hospitals could lose $54B this year due to more expenses, sicker patients

Outpatient Sign over a Hospital Outpatient Services Entrance
A new report sounds the alarm that lingering impacts from the COVID-19 pandemic could cause hospitals to lose $54 billion this year. (Getty/EyeMark)

Hospitals across the country are expected to lose an estimated $54 billion in net income throughout 2021 due to higher expenses and fewer outpatient visits, a new hospital industry analysis found.

The analysis, released Tuesday by the American Hospital Association (AHA) and conducted by Kaufman Hall, found that more than a third of hospitals will keep negative operating margins through the end of the year.

“With cases and hospitalizations at elevated levels again due to the rapid spread of the Delta variant, physicians, nurses and other hospital caregivers and personnel are working tirelessly to care for COVID-19 patients and all others who need care,” said AHA President and CEO Rick Pollack in a statement. “At the same time, hospitals are experiencing profound headwinds that will continue throughout the rest of 2021.”

Kaufman’s analysis looks at financial data from 900 hospitals in the first and second quarters, just as the delta variant was taking hold across the country. It makes projections for the rest of the year based on those data.

Hospital margins could potentially be 11% below pre-pandemic levels by the end of the year, but the projections don’t factor in recent spikes in COVID-19 cases due to delta.

“Our projections reflect margin deficits that will inhibit hospitals’ ability to invest in growth or additional community services throughout 2021,” the analysis said.

Kaufman’s analysis found that hospital financial performance improved in the first half of the year. The percent of hospitals with a negative operating margin was 47% in the first quarter and was down to 38% in the next quarter.

“Our projections indicate the percent of hospitals with negative margins will improve further to 35% in Q3 and remain at that level through Q4,” Kaufman said. “However, this does not account for the latest surge in cases, which could push more hospitals to operate with negative margins.”

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Other parts of the report illustrate the mixed bag hospitals are facing this year.

Hospitals could lose $54 billion in net income in 2021, but, if there were no COVID-19 relief from the federal government, that figure could have ballooned to $92 billion.

There are several factors for the loss, chief among them an increase in sicker patients.

“The median length of stay is up 8% year-to-date compared to 2019 for most hospitals (indicating higher-acuity patients), and up as high as 18% for some hospitals with 500 beds or more,” the report said.

Meanwhile, even though outpatient revenue is up compared to pre-pandemic levels, “the accompanying increase in inpatient services is such that the portion of outpatient revenue to total revenue is down for many organizations,” Kaufman said. “This suggests that patients continue to delay outpatient services due to pandemic concerns.”

Hospitals have also faced higher expenses for staff and supplies such as personal protective equipment needed to protect workers from infection.

The total expense per adjusted discharge, which details the expenses for a patient that is being treated for inpatient or outpatient care, is up 15% compared to pre-pandemic levels for all hospitals, Kaufman estimates.

The biggest increase has been in drug costs, where drug expenses per adjusted discharge are up 24% compared to pre-pandemic levels. But supply expenses for items such as PPE are also up 17% per discharge.

Kaufman’s analysis comes as major for- and nonprofit hospital chains reported rosy financial results in the second quarter of the year.

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For-profit chain Tenet Healthcare posted $120 million in profits for the second quarter, and major chain HCA Healthcare also posted a $1.4 billion profit. Both systems were buoyed by sharp increases in volumes compared to pre-pandemic levels, including a nearly 20% boost for HCA and nearly 14% for Tenet.

Not-for-profit systems also rebounded significantly during the second quarter. Mayo Clinic, for example, posted $451 million in profits in the second quarter on the back of a 7% boost in admissions compared to the first half of 2020 and a major 21.5% increase in surgery admissions.

Some hospital systems were also not worried about the impact of the surging delta variant, which started to spread rapidly in the U.S. near the end of the second quarter.

Tenet CEO Ron Rittenmeyer said during an investor call back in July that while the variant has led to an uptick in cases, the system has sufficient capacity to handle a major surge.

CommonSpirit Health, which posted nearly $1 billion in operating revenue gains at the end of its fiscal year June 30, also wasn’t worried about the surge. The system said during an investor call last week that while COVID-19 inpatient cases increased eightfold in early September, it had enough PPE supplies and ventilators for patients.