July 2020
National Hospital Flash Report
Based on June Data from Over 800 Hospitals
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Dear Readers,
Hospitals have recovered substantially since the beginning of the pandemic and the lows of April, where the median Operating Margin without federal aid was –35%. In June, the median hospital Operating Margin rose to approximately 11% with the help of emergency CARES Act funding, compared to 4% without the aid, as shown in this month’s issue of the National Hospital Flash Report. The improvement in the median Operating Margin by itself, however, does not capture all the vagaries of the underlying operational changes that resulted in that improvement.
The COVID-19 pandemic has created a highly volatile operating environment for the nation’s hospitals and health systems. The extreme fluctuations in performance across all measures over just the last four months highlight the high levels of uncertainty surrounding the pandemic and its future impacts on the healthcare industry.
The June data tell a complex story with many key takeaways and a variety of factors influencing performance:
  • CARES funding still is playing a significant role in hospital performance. Distributions that began in June targeting rural, high-impact, Medicaid, CHIP, and safety-net hospitals have helped boost overall margins, especially for the smallest hospitals which may have qualified for multiple of the aforementioned funds.
  • Volumes are returning but remain significantly lower than last year, particularly for emergency departments. Outpatient volumes rose more substantially than inpatient volumes from May to June, as some of the typically higher-margin areas have resumed services. Operating room volumes rose slightly above 2019 levels, as the backlog of patients that delayed care has begun to return.
  • Revenue tracked upwards with volumes, but to an even greater degree as some of the enhanced payments boosted performance. Additionally, bad debt and charity care decreased due to the timing of write-offs typically occurring after 120 days, and resulting from the previously low patient volumes.
  • Expenses have tracked closely with patient revenue, but remain under budget as cost-control measures continue. On a volume-adjusted basis, supply expense rose considerably from May to June and compared to the same period last year, as hospitals purchased supplies to treat patients and ensure safety. Labor expense decreased month-over-month, but remained above last year’s levels.
  • Variance in hospital margin performance widened both regionally and across hospitals of different bed-sizes, as recovery proves to be uneven for hospitals. When excluding CARES dollars, most hospitals demonstrated Operating Margin improvement, but those that did not improve demonstrated worsening performance to an even greater magnitude.
  • Hospitals continue to be affected by variability in states’ abilities to control the spread of COVID-19, the impacts on non-urgent services, and more importantly, disparate behavioral attitudes toward the virus that impact resumption of services.
May and June have shown some early signs of a potential recovery with two months of positive margin results with CARES relief, but there is no guarantee those trends will continue. Moving forward, hospital and health system leaders will need to find ways to build stability amid the chaos. They will need to adapt to the new reality of lower inpatient volumes and unstable revenues, and build mechanisms and strategies to ensure financial and operational agility—the future of America’s hospitals depends on it.
Thank you.
Jim Blake Managing Director and Publisher
Kaufman Hall
See Kaufman Hall’s Coronavirus page for regular updates.
©2020 Kaufman, Hall & Associates, LLC
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