KHA Perspective

September 2018

Kaufman Hall Perspective

Profitability performance was solid again in August, with a 103 bps month-over-month improvement in Earnings Before Interest, Depreciation, Taxes and Amortization (EBITDA) and a 106 bps improvement in Operating Margin. This strong performance appears to be unsustainable, however, as hospitals face mounting pressures to reduce operational expenses. These pressures will continue without incremental and new revenue sources.

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Hospital volumes continued to shift from inpatient to outpatient, with a 3 percent year-over-year decline in inpatient discharges and a 1 percent increase in adjusted discharges. However, both inpatient and adjusted discharges increased relative to the month prior at 6 percent and 2 percent growth, respectively.

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On average, hospitals met or lagged behind budgeted volumes, further reinforcing the need to continue to manage expenses. Looking at Length of Stay (LOS), August reversed the trend of decreased LOS relative to the prior year, with most regions having higher patient days than last year and a decrease in discharges.

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Overall, August revenues per adjusted discharge and patient day were slightly ahead of last year and the previous month. However, increases of approximately 1 percent were 2-4 percent behind budget expectations. Even with many hospitals entering a new fiscal year in July, they continue to struggle to achieve Net Patient Service Revenue (NPSR) projections, impacting the validity of the related expense and capital investment budgets.

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August was another strong month for hospital expenses at the national level. Most expense metrics—with the exception of FTEs per Adjusted Occupied Bed—were down compared to budget and the previous year's actual expenses. These trends likely reflect many hospitals' focus on starting strong in the new fiscal year.

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Revenue impacts differed across the country. Hospitals in the Northeast/Mid-Atlantic were 10 percent ahead of prior year and 3 percent favorable to budget for NPSR per Admission. This same cohort also saw minimal increases in bad debt and charity. Hospitals with 99 beds and below were most unfavorable to both budget and year-over-year changes, potentially due to decreased government funding.

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The U.S. economy remained strong in August. The Bureau of Economic Analysis revised its second-quarter GDP growth estimate from 4.1 percent to 4.2 percent, the largest quarterly increase in GDP since 2014. Underemployment decreased to 7.4 percent, the lowest it has been in more than 10 years.

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Despite a backdrop of increasing tariffs and talk of “trade wars,” equities performed well in August, with the S&P 500 up 3.0 percent and the MSCI World Index up 1.0 percent. Emerging stocks have struggled this year as several countries grapple with slower economies and slumping currencies.

Contributors

James Blake

Publisher

James Blake

Data Science and Analytics

Scott Engel

Erik Swanson

Will Newton

Samantha Schwind

Shelly Ewerz

Technology

Scott Engel

John Hughes

Data Operations

Jared Murray

Brian Buchholtz

Profitability, Dan Majka

Subject Matter Specialists

Profitability, Kristopher Goetz

Volume, Todd Fitz

Revenue, Jason Sussman

Revenue, Kimberly Neese

Expense, Therese A. Fitzpatrick

Expense, Hardik Dalal

Non-Operating, Matt Robbins

Non-Operating, Ilan Weisberg

Expense, Brian Cole

Spotlight Contributors

James Landman

Rob Fromberg

Jim Pizzo

Rich Oakfield

Rob Fromberg

Editorial

Carolyne Krupa

Todd Fitz

Brian Cole

Marketing

Rob Kunzler

John Howlett

Hillary Ervin

Kristina Wright

Interns

Cole Morgan

George Dyre

Daniel Davis

Ian Crane

Special thanks to our digital publishing partner: Readz

www.readz.com

Please direct all questions or comments to

flashreports@kaufmanhall.com

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