August 2018
Profitability
ic_arrow_up.svg
Hide Page Sections
ic_arrow_drop_down_black_24px.svg
Show Page Sections
EBITDA Margin by Region ?
Operating EBITDA margins were favorable to the prior year in all geographic regions with the greatest gains occurring in the West region, representing a nearly 300 bps improvement. However, profitability performance to budget varies by geography. The Northeast/Mid-Atlantic region performed most unfavorably to budget with a -66 bps variation. More than other parts of the country, this region was impacted by unanticipated increases in bad debt/charity care, supplies, and drug expenses. The Great Plains region represented the greatest variation to budget with an operating EBITDA margin 296 bps favorable to budget. It should be noted that this region contains a larger percentage of 0-25 bed hospitals than other regions. These hospitals may have more difficulty predicting performance than larger hospitals.
% Change
Absolute Change
% Change
Absolute Change
National Profitability Observations
The report shows good profitability in the sector for the third consecutive month. Performance is favorable compared to both the prior year and current budget. Despite a 3 percent year-over-year decline in net revenue per adjusted discharge, these positive trends are being driven by a strong 7 percent reduction in year-over-year expenses per adjusted discharge. Performance in labor expense management and purchased service expense management was particularly strong. However, July’s performance did deteriorate slightly from June, with operating EBITDA margin declining 101 bps and Operating Margin declining 111 bps.
Despite solid performance, there are two areas of concern:

1. The strong profitability performance appears to be untenable as management will be challenged to continue the trend of reducing operational expenses at a faster rate than declining revenues. Without incremental and new sources of revenue, the profitability of the nation’s hospitals will be under pressure.

2. The actual performance to budget remains variable. While favorable performance to budget may be interpreted as a positive, profitability that is 10 percent to 20 percent favorable to budget indicates a lack of precision during the budget process. This inaccuracy can result in an imprecise use of resources that could be avoided if organizations budgeted more accurately. Organizations may want to consider a “goldilocks target” performance to budget, whereby the target for actual performance to budget is within +-5 percent (not too low and not too high).
Unless noted, figures are actuals and medians expressed as percentage change
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
(Click to enlarge)
Operating EBITDA Margin
4%
-5%
11%
Operating Margin
7%
-11%
30%
Unless noted, figures are actuals and medians expressed in basis points
Profitability % Change
Profitability Absolute Change
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
(Click to enlarge)
Operating EBITDA Margin
73.0
(101.0)
99.5
Operating Margin
65.0
(111.5)
180.0
By Region
National Observations
By Bed Size
EBITDA Margin by Bed Size
Hospital bed size does not appear correlated with profitability. All bed sizes performed within 150pbs of operating EBITDA margin compared to budget. The continued strong performance of hospitals with 100-199 beds is noted, with profitability increasing more than 400 bps over last year.
The nation’s largest hospitals, those with more than 500 beds, experienced the greatest declines in profitability, both year over year and compared to budget. Despite some incremental improvements in revenue, these large organizations have been unable to manage expenses as well as smaller ones.
% Change
Absolute Change
% Change
Absolute Change
By Region
National Observations
By Bed Size
©2018 Kaufman, Hall & Associates, LLC
Interested in more timely data and insight on hospital performance?
Sign up for a free trial today.
Become a subscriber
Submit
Annual subscription
Enterprise subscription
Receive our monthly reports
Your details
scroll_up.svg
kha_logo.svg
National Hospital Flash Report
menu_icon.svg
mail.svg
Share article
Sign up now for access to the latest news and reports
SUBMIT