Hospital margins remain narrow in March as COVID-19 financial strain lingers

Dive Brief:

U.S. hospitals continue to struggle under the weight of the pandemic and its financial pressure, reporting a mixed performance in March, according to a new report from Kaufman Hall.
Volumes continued to decline, while revenues and expenses generally rose compared to the same time last year. Margins increased on both a year-to-date and year-over-year basis, but that's largely due to measuring performance this year with last March, when hospitals were hit hard by the effects of state lockdowns and a pause in non-essential procedures, the consultancy said.
Researchers expect continued margin and revenue gains in the next few months, especially in comparison to record-poor performance in the first few months last year. Some gains are due to returning patient volumes, but the report warns the impacts of COVID-19 on providers are far from over.

Dive Insight:

Much like the brunt of 2020, the beginning of 2021 hasn't been especially kind for U.S. providers, which faced significant margin declines in January and February. In February especially, outpatient volumes remained low and inpatient volumes continued to decline, following a record high of COVID-19 hospitalizations in January, Kaufman Hall said.

National COVID-19 metrics plateaued early in March but — despite new vaccine doses surpassing 3.5 million a day late in the month — began to climb again, due to the increased spread of more infectious coronavirus variants, growing travel rates and lifting of social and business restrictions across many states.

New hospital admissions of COVID-19 patients increased 17% over the month, the report based on data from roughly 100,000 providers said.

However, volumes declined across most metrics year-to-date, though they were exponentially better than March last year as hospitals were first slammed by COVID-19. Discharges were down 8.2% from January to March compared to the same period last year, but bumped up 1.8% in March year over year and 12.7% month over month.

Emergency room visits were particularly depressed on a year over year and year-to-date basis but actually increased 20.3% in March compared to February. Surgery volumes remained down compared to pre-pandemic levels, but a rise in operating room minutes suggest patient concerns about virus transmission in hospital settings may be ameliorating, hinting a potential return in non-emergency procedures.

Gross operating revenue rose 4.4% from January to March compared to the same period last year, almost 25% year over year and almost 17% month over month. Inpatient and outpatient revenue both increased over all three metrics, Kaufman Hall found.

However, expenses also rose. Total expenses, total labor expenses and total non-labor expenses all increased about 4% year-to-date, according to the report.

Those pandemic-related costs continue to depress hospital margins, which remained narrow in March compared to normal levels. However, hospital performance has generally improved as outpatient activity increased.

Not counting the effect of congressional funding from the Coronavirus Aid, Relief, and Economic Security Act passed early last year, operating margins increased 2.5 percentage points year-to-date, 5.2 percentage points compared to February and 14.5 percentage points compared to March last year.

The report paints a complex picture of the pandemic's continued effects on U.S. providers, many of which are likely to continue for much of 2021, Kaufman Hall said. The Chicago-based consultancy said it expects the lingering effects of the pandemic to drive 2021 hospital margins down between 10% and 80%, and revenues down between $53 billion to $122 billion compared to pre-pandemic levels.

The worst of the pandemic's financial effects have slammed smaller, regional hospitals, while it seems some of the largest hospital operators in the country will emerge relatively unscathed from COVID-19.

Both HCA and Tenet reported profit jumps in the first quarter, citing higher patient acuity and a rebound in ambulatory volumes late in the period. Both for-profit chains said they expect volumes to recover throughout 2021, albeit slowly, and increased their full-year earnings outlooks following the results, posted in late April.