April hospital margin gains contrast steep losses from start of COVID-19, not improved performance

Dive Brief:

  • The finances of U.S. hospitals continue to improve as the coronavirus pandemic wanes, following months of steep losses last year, according to a new report from Kaufman Hall.
  • In April, hospital margins, volumes and revenues were up across most performance metrics year to date and year over year, though they were down compared to March, the consultancy found.
  • Researchers called the results “encouraging,” but noted they were more indicative of a recovering industry following the record-low performance seen in the first two months of COVID-19 in 2020, rather than strong performance overall this year.

Dive Insight:

Hospitals struggled last year as COVID-19 dampened volumes and increased expenses, though many large chains, at least on paper, seem to be in better financial shape than they were before the pandemic.

Though a handful of operators have returned some or all of the funds, hospitals were buoyed by billions of dollars in federal aid last year, and all but one major U.S. for-profit system posted notable profits in the first quarter of this year as patient volumes recovered. 

Kaufman Hall’s report found hospitals’ average operating margin rose 102% in January through April compared to the same period last year, not including relief funding Congress allocated for providers in the sweeping Coronavirus Aid, Relief, and Economic Security Act. Including those grants, operating margin was up 91%.

On a year-over-year basis, operating margin was up 113% without federal funding and 110% including it in April. April last year — the first full month of the pandemic in the U.S.  — saw widespread state lockdowns and restrictions on non-emergent care that caused operating margins to plummet a whopping 282% year over year, the report found.

However, April 2021 hospital margins remained thin compared to normal, pre-COVID-19 levels, researchers noted.

“We have to keep the April results in appropriate context,” Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said. “While we anticipate the data in the months ahead will show additional gains over low levels seen in early 2020, overall margins remain low and fluctuations month-over-month convey continued uncertainties for hospitals, as they work to recover from a profoundly challenging pandemic.”

Volumes saw a notable bounce back in April compared to 2020 levels, but dipped slightly compared to March 2021. Adjusted discharges were up 6% year to date and 66% year over year, while adjusted patient days grew 10% year to date and 65% year over year. Both fell 1% compared to March.

Emergency room visits were also mixed, falling 7% year over year for the period January through April. However, they rose 57% year over year in April and 5% compared to March.

Revenues saw a similar shift, with gross operating revenue rising on a year to date and year over year basis by 17% and 72%, respectively, but dropping 3% in April compared to March.

Inpatient revenue rose 11% year to date and 37% year over year; while outpatient revenue rose 20% year to date and 115% year over year. However, both dipped roughly 2% on a month-over-month basis.

Expenses also increased both year to date and year over year, but decreased slightly month to month.

Hospital executives have said they are cautiously optimistic about the remainder of 2021, as revenues and volumes continue to tick up. However, month-to-month fluctuations in performance metrics are likely to continue, Kaufman Hall said, and underscore the ongoing uncertainty in the sector.

In a previous report, the consultancy said it expects the effects of the pandemic this year to cause hospitals to lose somewhere between $53 billion and $122 billion, compared to normal levels.