June 2018
Profitability
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EBITDA Margin by Region ?
Year-over-year operating EBITDA margin variance appears to be driven more by regional differentiation than size differentiation. Variances by geographic region ranged from approximately minus-200 bps to plus-200 bps compared with the prior year’s performance (400 bps range). Performance in the Western region was consistent with the prior year’s performance, while the South and Northeast/Mid-Atlantic regions demonstrated stronger performance than the prior year and the Midwest and Great Plains regions demonstrated weaker performance. The Southern region experienced the most favorable increase in profitability during the past year. This was driven by strong improvements in revenue combined with improved expense performance. Nearly all cohorts (by size and geography) performed favorably compared with budget with the slight exception of the Midwest, suggesting conservatism in this time of uncertainty.
% Change
Absolute Change
% Change
Absolute Change
National Profitability Observations
Median operating margin and operating earnings before interest, taxes, depreciation, and amortization (EBITDA) both improved by 60 basis points (bps) over the prior year. This increase is being driven in part by favorable performance on the expense side, which outpaced slight decreases in revenue. The range of performance year-over-year was greater for operating margin compared with operating EBITDA margin, indicating that the change in capital expense (depreciation and interest) and associated balance sheet activity (capital expenditures and debt financing) played a role in profitability changes. The month-over-month change in median operating margin was very positive, with a 24 percent increase in profitability over the previous month and a 12 percent improvement over the budget plan. Kaufman Hall is closely monitoring the relationships between profitability, improvements in average length of stay, and the continued shift in care to outpatient settings. We will provide additional commentary in the coming months.
Unless noted, figures are actuals and medians expressed as percentage change
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
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Operating EBITDA Margin
5.4%
11.7%
4.1%
Operating Margin
12.3%
23.8%
4.8%
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
(Click to enlarge)
Operating EBITDA Margin
70.9
135
59.2
Operating Margin
91.7
203.1
60.4
Unless noted, figures are actuals and medians expressed in basis points
Profitability % Change
Profitability Absolute Change
By Region
National Observations
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EBITDA Margin by Bed Size
While hospital size does not appear to be correlated with changes in profitability, smaller organizations are the exception. All bed sizes demonstrated performance that was 50-150 bps stronger than the previous year (100 bps range). The exception is hospitals with 25 beds or fewer. These organizations had a minus-300 bps change in operating margin and a minus-200 bps change to operating EBITDA. Continued challenges related to the ability to leverage economies of scale, declining acuity, and payer mix will likely contribute to this trend in the months and years to come. Most hospitals saw positive change over the previous month’s results, with the exception of organizations with 26-99 beds. Except for hospitals in the 200-299 bed range, most hospitals experienced a percentage improvement over their planned budget.
% Change
Absolute Change
% Change
Absolute Change
By Region
National Observations
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©2018 Kaufman, Hall & Associates, LLC
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