KFF: For-profit hospital system margins surge past pre-pandemic levels

Operating margins for the three largest for-profit hospital chains exceeded pre-pandemic levels in the third quarter, according to a new analysis that comes as hospital lobbies are pushing for financial relief from Congress. 

The analysis, released Monday by the Kaiser Family Foundation, looked at the latest financial performance for large hospital chains HCA Healthcare, Tenet Healthcare and Community Health Systems.

“For all three systems, operating margins have exceeded pre-pandemic (2019) levels for most of the pandemic (9 out of 11 quarters), including the last quarter of our analysis (the third quarter of 2022), despite recent decreases in operating margins,” the analysis said. 

Kaiser found that Tenet and HCA’s operating margins declined below 2019 levels in the first two quarters of the pandemic as unnecessary elective procedures were canceled or delayed. CHS’ operating margins fell below 2019 levels in the first quarter of 2020 and dipped again in the second quarter of 2022. 

“As of the third quarter of 2022, operating margins were 11.4% for HCA, 8.4% for Tenet and 1.2% for CHS,” Kaiser wrote. 

In addition, the stock prices for the three hospital systems increased during the first year and a half to two years of the pandemic. 

“At their heights, HCA stock prices had increased by 87.9%, Tenet stock prices had increased by 153.8% and CHS stock prices had increased by 383.1% relative to January 2020,” the analysis said. 

Even though stock prices have declined in 2022 alongside with a broader economic trend, Kaiser noted that analysts are bullish on Tenet and HCA’s stock and neutral on CHS. 

Kaiser noted that the goal of the analysis is to add nuance to the ongoing discussion surrounding the financial health of hospitals.

“While some hospitals are struggling in the current environment—with high inflation and the ongoing burdens posed by COVID-19, flu and respiratory syncytial virus (RSV)—our results indicate that the largest for-profit systems have had operating margins that exceed pre-pandemic levels,” the analysis said. 

Nonprofit systems have fared worse than their for-profit counterparts in recent months. An analysis conducted by Fierce Healthcare of more than a dozen major nonprofit systems showed that some systems—such as Baylor Scott & White, which posted $257 million in the latest quarter—made gains, while others such as Providence generated losses of $164 million. 

The American Hospital Association (AHA), which has been pressing Congress for more financial relief for facilities, told Fierce Healthcare that hospitals are still facing “skyrocketing costs for supplies and labor” and that more facilities are “at the brink.”

“In fact, more than half of the nation’s hospitals are expected to be operating at a financial loss by the end of the year, jeopardizing access to care for patients,” the AHA said. 

Kaiser’s analysis comes a day after The Wall Street Journal published a report that showed hospitals received billions of dollars in aid, with some going to profitable systems that didn’t need it. Part of the problem was a mismatch in the federal government’s allocation of the $175 billion Provider Relief Fund passed by Congress at the onset of the pandemic in early 2020, the report said. 

AHA said Congress and the Trump administration “rightly worked to get the relief funding out swiftly in the early days of the pandemic. As we learned more, the federal government moved to target the funding to those most at need.”

The advocacy group is one of several clamoring for Congress to provide relief from cuts expected under the Physician Fee Schedule and a 4% cut to Medicare payments under the PAYGO law, which requires mandatory cuts if federal spending reaches a certain threshold. 

Several groups have been eyeing a must-pass spending package to include legislation to forestall the cuts. Congress must pass a new spending package by Dec. 16 to avoid a government shutdown.