October 2018
Profitability
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EBITDA Margin by Region ?
There continues to be low overall correlation between geographic region and hospital profitability. The Western region of the country experienced the largest declines in profitability with a nearly 300 bps erosion in Operating EBITDA Margin. The largest driver of declining performance in this region is a more than 20 percent increase in FTEs per AOB. The Midwest demonstrated the largest gains in profitability, driven by stable outpatient volumes and strong labor expense management.
% Change
Absolute Change
% Change
Absolute Change
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
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
(7.7%)
(15.5%)
(0.8%)
Operating Margin
(8.3%)
(27.5%)
(0.2%)
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
(108.0)
(264.5)
(4.0)
Operating Margin
(30.0)
(239.0)
(4.0)
By Region
National Observations
By Bed Size
EBITDA Margin by Bed Size
Profitability declines at the nation’s largest hospitals are a continued concern. Hospitals with 300-399 beds experienced a nearly 100 bps erosion in Operating EBITDA Margin compared to last year, while hospitals with more than 500 beds experienced a nearly 150 bps decline. These unfavorable trends are likely driven by the high proportion of fixed costs coupled with declining inpatient volumes. Conversely, hospitals with 26-99 beds and 100-199 beds demonstrated the largest gains in profitability from last year. This is driven by relatively strong management of FTEs and marginal revenue growth.
% Change
Absolute Change
% Change
Absolute Change
By Region
National Observations
By Bed Size
©2018 Kaufman, Hall & Associates, LLC
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