Kaufman Hall: Nearly 40% of hospitals may face negative margins this year even with smooth vaccine rollout

COVID-19 vaccine
A smooth rollout of vaccinations and declining COVID-19 hospitalizations won't be enough to keep more than a quarter of hospitals from operating in the red this year, Kaufman Hall finds. (Kunal Mahto/iStock/Getty Images Plus/Getty Images)

Nearly 40% of hospitals could operate in the red this year even if the vaccine rollout is smooth and COVID-19 hospitalizations decline, a new analysis estimated.

The analysis, conducted by consulting firm Kaufman Hall on behalf of the American Hospital Association (AHA), gives a glimpse of the lingering financial impact of the pandemic on hospitals.

“The support our field has received so far has been greatly appreciated and has kept many hospitals afloat to provide patients with needed care,” said AHA President and CEO Rick Pollack in a statement. “However, as this report makes clear, hospitals and health systems will need further relief to meet the healthcare needs of their patients and communities.”

The analysis looked at the potential operating margins for hospitals under two scenarios.

The scenarios factor in the recovery pace of inpatient, outpatient and emergency department volumes that have suffered due to the pandemic. It also looks at the degree and pace of COVID-19 case declines alongside the speed and availability of COVID-19 vaccinations.

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Hospitals have faced major declines in outpatient and inpatient revenues due to patients being reluctant to get care for fear of contracting the virus.

The most optimistic scenario shows a recovery occurring between the first and third quarters of this year and has margins leveling off at 10% below pre-pandemic levels.

“Under the pessimistic scenario, the recovery does not begin until the second quarter, and even then is very slow, culminating in fourth quarter margins that are 80% less than pre-pandemic norms,” the report said.

But hospitals are likely in for a rough 2021 under either scenario.

Kaufman estimated that under both scenarios, the percentage for hospitals with a negative margin could be higher at the end of 2021 than prior to the pandemic.

Before COVID-19 hit, about a quarter of hospitals were operating with negative margins. That figure increased to about half of hospitals at the beginning of this year.

“Under an optimistic scenario, an average of 39% of hospitals could have negative margins—still significantly higher than the 25% before the pandemic,” the analysis said. “Under the pessimistic scenario, the percentage of hospitals with negative margins could be basically unchanged, with almost half of America’s hospitals having more expenses than revenue.”

This is the latest analysis from Kaufman to predict a rough 2021 for hospitals. The firm also predicted facilities could lose between $53 billion and $122 billion this year due to the pandemic.