THE current COVID-19 pandemic situation is creating uncertainty for health systems; this may appear to be taking hits on both the physician practice and hospital sides of their business.
According to the latest National Hospital Flash Report from consulting firm Kaufman Hall, the median hospital operating margin index stands well below CY 2019 performance at 2.7 percent year to date (YTD) through September and -1.9 percent without CARES Act funding. Although Federal aid from the CARES Act funding to the healthcare system. Without CARES act funding the median hospital operating margin index is -1.9 percent.
The Kaufman Hall Earnings before Interest, Taxes, Depreciation, and Amortization (EBITDA) margin index stands at 7.5 percent year to date with CARES act funding and 3.2 percent without CARES act funding.
Many factors have contributed to [grow in margins amid suppressed volumes. Average LOS (length of stay) continued to increase, rising about 2.3 percentage year to date and year on year. This rise contributed to a surge in payment per case as demonstrated by an increase in net patient service revenue (NPSR) per adjusted discharge by 5.8 percent year to date and 10.7 percent year over year.
COVID-19 organizations are also benefitting from a 20% Medicare COVID-19 add-on. Interruption of the -2 percent sequester changes and lower bad debt also contributed to higher revenue in September 2020.
| Median Change Jan-Sept 2020 from Jan –Sept 2019 | ||
| Margin | Operating Margin (w/out CARES) | 6.5% points |
| Operating Margin (w/ CARES) | 1.4% points | |
| Volume | Adjusted Discharges | 12% |
| OR Minutes | 12% | |
| ED Visits | 16% | |
| Revenue | Gross IP Revenue | 3% |
| Gross OP Revenue | 8% | |
| Expenses | Total Expenses per Adjusted Discharge | 15% |
“Health system leaders must keep a pulse on physician practice performance as they continue to navigate COVID-19 and plan for a post-pandemic era,” said Jim Pizzo, a managing director at Kaufman Hall and leader of the firm’s physician advisory practice in a press release. “Our data in this new quarterly report provides valuable insights for CEOs, CFOs, and physician enterprise leaders as they seek new ways to ensure optimal value in these tumultuous times.”
This is particularly correct as health systems navigate the coming months in which the ongoing coronavirus pandemic will hit with the seasonal flu and consumers continue to avoid the hospital.
Hospitals sustained to face lower capacities for the 7th consecutive month in September 2020. The consulting firm understood from their data on 900+ hospitals. The facilities reported drops in adjusted charges of 12 percent, operating room minutes of 12 percent, and the emergency department visits by 16 percent.
Due to all these factors, there is a rise seen in September 2020 Hospital margins year over year in spite of low in volumes. According to the National Hospital Flash Report, operating margins were rose by 8.1 percent, and without CARES act funding it was at 7.8 percent below budget.
Kaufman Hall advised health organizations to arrange telehealth improvements and patient engagement to make sure the best value in the post-pandemic period. The firm also suggested that health organizations align physician payment with patient needs and increase the use of technology, particularly to streamline patient access to specialists.
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