'Tumultuous' year for hospitals results in 55% drop in median operating margin, Kaufman Hall finds

Hospitals across the U.S. saw their median 2020 operating margin drop 55.6 percent throughout 2020, without taking into account federal relief aid, according to a new report from healthcare consulting firm Kaufman Hall. When factoring in Coronavirus, Aid, Relief and Economic Security Act cash, hospitals saw their median operating margins dip 16.6 percent. 

The steep decline resulted from a "tumultuous 2020," according to Kaufman Hall. For hospitals, financial stress in 2020 came from growing COVID-19 hospitalization rates, escalating expenses, declining elective care volumes and reduced outpatient revenue.

"Hospitals and health systems across the country closed a tumultuous 2020 with record levels of COVID-19 related hospitalizations and continued poor performance across most metrics in December," Kaufman Hall wrote. 

Overall, hosptials saw their median operating margin at 0.3 percent in 2020, without funding from the CARES Act. With funding, the median operating margin was 2.7 percent.

In addition to seeing median operating margin declines, hospitals' median 2020 margin on operating earnings before interest, taxes, depreciation and amortization was 5.1 percent without funding from the CARES Act and 7.6 percent with CARES Act funding. In total, throughout 2020 the operating operating EBITDA margin fell 34.8 percent for hospitals without the federal funding and 7.9 percent when that federal funding is included. 

Gross operating revenue also fell, according to the report. Not including CARES Act cash, hospitals saw their gross operating margin decline 3.1 percent over the course of the 2020 calendar year.

Although hospitals saw patient days increase due to an influx in COVID-19 cases, discharges fell 7.3 percent for 2020, and the average length of stay rose 6.6 percent from January to December. 

Emergency department visits saw the largest volume declines in 2020, falling 16.2 percent during the 12-month period when compared to 2019. 

Operating room minutes also fell 10.5 percent in 2020 compared to 2019.  

The patient volume declines were coupled with expense increases, according to the report. For example, total expense per adjusted discharge and labor expense per adjusted discharge both increased 14.4 percent throughout 2020, compared to 2019. 

"The next few months are expected to be rough, as the nation's hospitals and health systems cope with rising COVID-19 infections as people congregate indoors over the colder winter months, and as the new, more contagious variant of the virus spreads nationwide," Kaufman Hall wrote.


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