Gap between expenses and revenues narrows for community hospitals

• For community hospitals, expenses inched closer to revenues during a recent five-year period tracked by the American Hospital Association.
• The gap between inpatient and outpatient revenues dramatically narrowed during the five years.
• The number of community hospitals decreased by 2% during the time frame.

Community hospital expenses inched closer to revenues during a recent five-year period, according to the latest industry survey.

Among the 5,198 community hospitals surveyed, total net revenues (including non-patient-care revenue, both operating and nonoperating) in 2014 outpaced total expenses (including non-patient-care expenses) by 9%, or $75 billion. But by 2018, revenues were only 8%, or $83 billion, higher than expenses. The findings were included in the American Hospital Association’s (AHA’s) recently released compendium of 2018 data collected directly from the 6,146 U.S. hospitals.

“Expenses are increasing faster than net revenue, which suggests hospitals aren’t financially viable long-term unless this trend reverses,” said Chad Mulvany, a director of healthcare financial practices with HFMA.

Another key development was the narrowing gap between inpatient and outpatient revenue. Inpatient revenues were $206 billion, or 16%, higher than outpatient revenues in 2014. But by 2018, inpatient revenues were higher by only $55 billion, or 3%.

“This more or less confirms the trend that everyone’s talking about,” Mulvany said. “While most places have relatively good inpatient costing systems, hospitals need to do a better job on costing across the range of outpatient settings.”

Mulvany said improved costing efforts will be a big focus of the HFMA Financial Sustainability Summit in April.

Data shows an admissions downturn

Community hospitals in 2018 also had their first decrease in inpatient admissions since the Affordable Care Act (ACA) both launched a subsidized individual-insurance marketplace and expanded Medicaid eligibility in many states in 2014.

The inpatient decline and the continued increase in outpatient visits generally echoed the divergent trends that rating agencies have found among the not-for-profit hospitals they track. For instance, Moody’s Investors Service reported that among its rated hospitals the median growth rate in inpatient admissions and observation stays in 2018 slowed to 1.1%, while outpatient visits increased by 2.9%.

Community hospital admissions declined in 2018 by 55,000 but still totaled 34.3 million, according to the AHA data. Outpatient visits increased by 316,000 to reach 766.4 million.

Inpatient and outpatient trends at specific categories of hospitals included:

• 59,000 decrease in admissions at nongovernment, not-for-profit community hospitals
• 4,000 increase in admissions at for-profit community hospitals
• 979,000 decrease in outpatient visits at for-profit community hospitals

Community hospitals decrease in number

Other trends identified in the AHA data included a 2% decrease in the number of community hospitals over five years, to 5,198, in 2018. The biggest decline was a 4% decrease in rural hospitals, to 1,821.

The number of hospitals decreased in every bed-size category, except for those with 500 or more beds. Specific counts included:

• 7% increase in community hospitals with 500 or more beds
• 10% decrease in community hospitals with 6-24 beds
• 3% decrease in community hospitals with 25-49 beds
• 6% decrease in community hospitals with 50-99 beds
• 9% decrease in community hospitals with 400-499 beds

Those closures were followed by 47 hospital closings in 2019, according to tracking by the Medicare Payment Advisory Commission. The 2019 closures mostly were small and located in Medicaid non-expansion states.

AHA also found the number of hospitals that were part of a system increased by 3% over five years, to 3,491, in 2018.

The relatively small change in ownership followed a high-profile wave of hospital consolidations in recent years.

The AHA survey on hospital ownership comes as the Federal Trade Commission plans increased scrutiny of hospital deals and amid mixed reports on whether hospital deal volume increased in 2019.

Data also illustrates ED utilization trends

Rate of emergency department (ED) use is a closely watched metric that indicates both hospital financial health and access to care. Although emergency outpatient visits increased by only 4% at all community hospitals during the five years tracked, much larger increases occurred at the smallest and largest hospitals, including:

• 28% increase in emergency outpatient visits at the smallest hospitals
• 16% increase in emergency outpatient visits at the largest hospitals

In contrast, Moody’s had found no increase in median ED visits among its tracked hospitals in 2018, attributing the finding to competition from urgent care centers and new types of outpatient facilities.