The hospital industry is projected to finish 2021 with a $54 billion loss, report finds

The projection may prove overly optimistic depending on the track that the latest COVID-19 surge takes during the next few months.

The financial turmoil that has affected hospitals and health systems throughout the COVID-19 pandemic won’t be alleviated during the remainder of this year, according to projections in a new report.

Prepared by Kaufman Hall on behalf of the American Hospital Association, the report projects that U.S. hospitals will finish 2021 with a $54 billion net-income loss. That number incorporates federal funding provided by the 2020 CARES Act.

The projections were based on the first two quarters of the year and thus don’t account for the uncertainty amid the ongoing COVID-19 surge, which already has impacted hospitals in many parts of the country.

Expenses up, margins down

The data in the report likely will be used to bolster the hospital industry’s case for continued financial support. Net-income losses for the year would be $92 billion without previously allocated federal funding, according to the report, “which further emphasizes the magnitude of losses hospitals will likely continue to face through the end of 2021.” The U.S. Department of Health and Human Services recently announced a $25.5 billion distribution from the Provider Relief Fund, with an application period opening Sept. 29.

Margins are projected to finish the year 11% below pre-pandemic levels, stemming in part from a higher-cost case mix. Median length of stay is up 8% relative to 2019 and by as much as 18% at some larger hospitals.

Total expense per adjusted discharge is up 15%. Labor expenses per adjusted discharge have risen by 14%, relative to 2019, even as FTEs per adjusted occupied bed have dropped by 4% year-to-date.

“This highlights that — even with hospital actions that have improved overall labor efficiency — the cost of labor has risen significantly due to labor shortages, hazard pay and other causes,” the report states.

Drug expenses per adjusted discharge are up by 24% compared with pre-pandemic, while overall supply expenses are 17% higher.

Meanwhile, outpatient revenue has dropped by as much as 20% at some hospitals, relative to 2019, even as it has risen slightly for the industry overall. For many organizations, “The result is a loss of much-needed outpatient revenues to support hospitals and supplement losses in other areas,” the report states.

Navigating choppy seas

More than a third of hospitals will finish the year with negative margins, according to the analysis.

“While many hospital leaders hoped 2021 would provide an opportunity to return their organizations to greater financial stability after the severe losses seen in 2020, those hopes are dimming as the virus continues to circulate throughout the population,” the report states.

A continued downturn could have long-term adverse effects: “Our projections reflect margin deficits that will inhibit hospitals’ ability to invest in growth or additional community services throughout 2021.”