October 2018
Profitability
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National Profitability Observations
In contrast to the previous four months, September profitability declined 15.5 percent and 27.5 percent from August for EBITDA and Operating Margin respectively. Both indicators declined more than 200 basis points (bps) and were unfavorable to budget. As predicted in previous editions of the National Hospital Flash Report, using expense management to maintain strong profitability during times of low revenue growth is proving difficult for the nation’s hospitals. While year-over-year change was only slightly unfavorable, the month-to-month decline raises several concerns:
  • Hospitals seem to have limited ability to continue and sustain recent cost reduction trends
  • Deteriorating cost performance is not isolated to one particular area, but is observed across the general ledger (i.e., Labor, Supplies, Drugs, and Purchased Services)
  • Inpatient volume declines and increases in average lengths of stay are impacting profitability, and will have even greater impact on operating performance as value-based payment models become more pervasive
  • Profitability declines are likely to continue without new sources of revenue, particularly in an outpatient setting. Unfortunately, many industry disruptors (i.e., CVS/Aetna, Optum/UnitedHealth) are devoting significant resources to capture these revenue streams
  • As noted last month, there is a discrepant trend in changes in EBITDA compared to changes in Operating Margin. The larger declines in Operating Margin suggest that depreciation related to brick-and-mortar and IT capital investments could be impacting performance
Profitability % Change
By Region
National Observations
By Bed Size
By Region
National Observations
By Bed Size
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National Hospital Flash Report
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