Latest data shows positive financial trends for hospitals, but will the good news be fleeting?

• June was a promising month in terms of hospital financial performance, according to new reports, even though margins stayed relatively low.
• The delta variant of the coronavirus threatens to reverse many of the gains, especially in some parts of the country.
• The pandemic could have a lasting effect on patient volumes and hospital expenses.

The latest financial data for the hospital industry shows continuing signs of a rally from the depths of the COVID-19 pandemic, experts say, but the delta variant could scuttle the momentum.

“There are some optimistic signs and then some that are a bit concerning or potentially troubling,” said Erik Swanson, senior vice president for data and analytics at Kaufman Hall.

Volumes remained down compared with 2019, according to Kaufman Hall’s latest National Hospital Flash Report, which examined metrics for June. Revenues surpassed pre-pandemic levels, but so did expenses.

The expense issue has been a drag on hospital finances, helping to keep margins well below 2019 numbers. Kaufman Hall reported that median operating margin in June was 2.8% (4.3% when including CARES Act funding), while operating EBIDTA margin was 7.4% (8.8%).

Year-to-date numbers have vastly increased from the first six months of 2020, but operating margin is down 10.3% and operating EBITDA margin is 10.7% less compared with 2019 (when discounting CARES Act funding).

Recent earnings reports from some large for-profit health systems suggest margins are on the upswing, Swanson noted, but that “doesn’t represent the nation’s hospitals really as a whole.”

Coping with another surge

The ongoing surge triggered by delta may prove to be less national in scope than the COVID-19 wave that slammed the country in late 2020 and early 2021. But some parts of the country have been hit hard over the last month. At least one health system in Florida has halted elective procedures again, and similar reports have emerged from Louisiana and Mississippi.

“To the extent that conditions get so bad that hospitals and organizations feel that they have to actually stop those services, that that will very much impact margins for those systems that do it,” Swanson said. “That could lead to an erosion.”

Relative to the beginning of the pandemic, Swanson said, there is room for optimism regarding hospitals’ ability to treat large numbers of COVID-19 patients while maintaining normal operations. However, no amount of process and protocol improvement is guaranteed to make patients any more comfortable about visiting hospitals amid news of another surge.

Swanson noted that in a previous report, Kaufman Hall examined whether there was a correlation between when elective procedures were halted in a particular state in 2020 and the financial performance of hospitals in that state. The association was weaker than might have been anticipated.

The finding indicates that “what was really driving some of those really poor margins were not necessarily mandated shutdowns, but the fact that patients and consumers themselves were actively avoiding that care,” he said. “And they were doing that universally, even if their own state or counties didn’t have particularly high COVID case counts.”

Such trepidation helps explain why a drop-off in July and August metrics seems likely, said Steve Wasson, executive vice president and general manager for data and intelligence with Syntellis Performance Solutions.

“I can’t tell you definitively that will or won’t happen, but it’s hard to believe it won’t,” he said. “I don’t think it’ll be quite what we saw last year because a lot of these organizations have figured out how to still supply care and deal with some of the COVID issues.”

A shifting case mix

While patient days for the first six months of 2021 are 1.5% higher than during the same period in 2019, according to Kaufman Hall’s numbers, adjusted discharges are 4.4% lower.

“That means the length of stay of the average patient has gone up,” Swanson said. “If you think of [length of stay] as a rough proxy for acuity, it means the acuity has gone up on the inpatient side.”

That pattern may hinge on persistent volumes of COVID-19 cases along with the possibility that patients with lower-acuity conditions are either seeking alternative sites or simply avoiding care. Hospital outpatient revenue is 24.3% higher compared with the first six months of 2020 and 9.6% higher than during the same period in 2019.

Second-quarter data also showed a significant upturn in surgeries, according to Syntellis. Compared with the same period in 2020, OR cases were up 69% and minutes increased by 18%. Imaging volumes increased significantly for PET scans and several other procedures, a trend that Wasson said bears watching as to whether those gains are a “leading indicator” for associated services.

Adult care volumes recovered more strongly than pediatric and perinatal services in June, according to the monthly Syntellis Performance Trends report, which analyzes data from more than 135,000 physicians and 1,000 hospitals.

“While patient days in many nursing departments increased in June 2021, pediatric, mother, and newborn nursing departments still accounted for four of the six lowest patient volumes,” the report states.

Why hospitals are spending more on care

Emergency department (ED) visits rose 3.2% in June compared with June 2020 but remained down nearly 15% from the same month in 2019, according to Syntellis.

“What we also saw was the acuity level of who did go to the ED was higher than it had been,” Wasson said.

That shift indicates why total expense per adjusted discharge for the first six months of 2021 was 14.5% higher than in 2019, according to Kaufman Hall, although it decreased by 2.6% compared with 2020.

Hospitals also are dealing with rising costs of PPE, drugs and certain other supplies, Swanson said.

“Those may be up in a foundational way that you wouldn’t necessarily expect to see decline rapidly over time,” he said.

Orthopedics and physical therapy are exceptions that have found ways to control expenses, according to the Syntellis data. Nonlabor expenses in both service lines decreased by more than 22% per adjusted patient day compared with 2019, while labor expenses decreased by 3% and 10%, respectively.

“The conclusion I drew from that was that they gained some efficiencies last year,” Wasson said. “Maybe they didn’t need all the staff that they thought, or they weren’t bringing back all the staff. [Or] they negotiated better deals out of a sense of necessity, but they’re benefiting from that now.”