Delta variant creates setbacks in hospital financial recovery

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Hospitals and health systems in the U.S. experienced both patient volume declines and financial setbacks in July as COVID-19 cases spiked due to the rapid spread of the delta variant, according to an Aug. 24 report from consulting firm Kaufman Hall.

Compared to pre-pandemic levels seen in 2019, hospitals saw lower margins and patient volumes. In addition, while revenues rose above 2019 levels, the gains were often offset by expense increases.

The median hospital operating margin was 3.2 percent in July, not including relief funding. With the relief aid, the median hospital margin was 4.1 percent in July. Additionally, hospitals' median operating earnings before interest, taxes, depreciation, and amortization margin for July was 7.7 percent without the federal relief aid and 8.9 percent with the relief aid. 

According to Kaufman Hall, operating margin was down 7 percent in the first seven months of this year when compared to the first seven months of 2019 and operating EBITDA margin dropped 8.3 percent when compared to the 2019 period. With the relief aid, operating margin rose just 1 percent and operating EBITDA margin fell 2 percent when comparing the first seven months of this year to 2019 metrics.

Hospitals in the South experienced the greatest year-over-year drop in margins, followed by hospitals in the Midwest. This was attributed to the delta variant spread.

Hospitals also saw key volume metrics decline from January to July of this year compared to pre-pandemic January 2019 to July 2019. For example, adjusted discharges fell 3.9 percent and emergency department visits fell 13.1 percent. Inpatient discharges also fell 9.2 percent compared to the first seven months of 2019.

"Hospitals likely will face additional setbacks with continued spread of the Delta variant and concerns over diminishing protection from the COVID-19 vaccines," said Erik Swanson, a senior vice president of data and analytics with Kaufman Hall. "Not surprisingly, hospitals in the regions with the highest rates of the variant were most affected in July, and we expect those impacts to deepen in the months ahead."

Hospitals did see revenue increases in the first seven months of 2021 compared to the first seven months of 2019. For example, gross operating revenue, not including relief funding, increased 8.3 percent, inpatient revenue was up 3.7 percent and outpatient revenue increased 10 percent in the first seven months of this year compared to January 2019 to July 2019.

Expenses rose in the first seven months of 2021, when compared to the same period in 2019. Total expense per adjusted discharge rose 14.1 percent versus January-July 2019 and labor expense per adjusted discharge rose 12.5 percent compared to 2019.

 

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