Hospital margins continued to improve in April, but volumes and revenues fell slightly

Even as hospitals recover from the financial setbacks of the pandemic, the sector can’t necessarily expect to see steady gains in upcoming months.

Hospital financial metrics generally continued to rebound in April even though margins remained narrow by usual standards.

Kaufman Hall’s monthly National Hospital Flash Report illustrates that as COVID-19 case counts have declined, margins have improved.

The median hospital operating margin on Kaufman Hall’s index in April was 2.4% without CARES Act funding and 3.3% when counting those payments. The numbers represented solid gains from March, when median operating margin was 1.4% and 2%, respectively.

Median EBIDTA operating margin in April was 7.1%, or 8.1% when including CARES Act funding. In March, those numbers were 5.7% and 6.5%, respectively.

For 2021 to date, operating margin through April had increased by 101.9% (8.6 percentage points) and operating EBIDTA margin had risen by 102.2% (8.1 percentage points) without factoring in CARES Act payments.

With the CARES Act funding included, the year-to-date increases were 90.6% (6.9 percentage points) for operating margin and 77.7% (6.2 percentage points) for operating EBIDTA margin.

Compared with April 2020, which was the first full month of the pandemic, the data shows:

• Operating margin was up 113.1% (39.3 percentage points) when discounting CARES Act payments and 109.5% (21.4 percentage points) when including CARES Act funding
• Operating EBITDA Margin rose 129.7% (36 percentage points) when discounting CARES Act payments and 117.8% (19.4 percentage points) when including CARES Act funding

“It is important to keep April’s margin gains in context,” the report states. “Rather than significant strength in overall hospital performance, they reflect a contrast to the brutal losses experienced at the start of the pandemic.”

Other key metrics

Volumes in April were up for 2021 to date and compared with April 2020 but down slightly relative to March 2021, with adjusted discharges and adjusted patient days falling by 1%.

On the revenue side, gross operating revenue slipped by 2.5% month-over-month but was 16.7% higher than at the beginning of the year and 71.8% higher than in April 2020, not including CARES funding. The decrease relative to March was roughly equal on the inpatient and outpatient sides, with reductions of 1.9% and 2%, respectively.

Expenses continued to be something of a drag on finances even as they dropped by about 3% from March levels (by 2% per adjusted discharge). Increases for 2021 to date were 6.6% for total expenses, 6.1% for labor expenses and 7% for nonlabor expenses.

The short-term outlook

The report states: “U.S. hospitals and health systems likely will see continued margin, volume and revenue gains in the coming months compared to dramatic losses seen in the early months of COVID-19. Fluctuations month-over-month, however, illustrate the continued uncertainties perpetuated by the pandemic. Numerous factors will influence the pace of recovery, including the trajectory of vaccination efforts and the continued spread of COVID-19 variants.

“Healthcare leaders must remain vigilant in efforts to monitor and improve performance as they move forward through this second year of an ongoing pandemic — the end of which remains yet to be determined.”