Delta variant hinders recovery for hospitals and physician groups

Aug. 30, 2021

Kaufman Hall released two new reports about the effects of the resurgence of COVID-19 cases from the rapid spread of the highly contagious Delta variant and how that is raising new uncertainties for hospitals, health systems and physician practices across the country.

Hospitals and health systems experienced setbacks in July as the variant drove dramatic spikes in new COVID-19 cases and hospitalizations. Margins and volumes both fell across key metrics compared to pre-pandemic levels seen in 2019, according to the latest issue of the National Hospital Flash Report. While revenues rose above 2019 levels, those gains were offset by escalating expenses. The July results also suggest that some healthcare consumers once again may be postponing non-urgent procedures and other outpatient care due to COVID-19 concerns. 

Physician groups also saw expenses increase in the second quarter of 2021 versus pre-pandemic levels, along with continued high investments required to supplement insufficient physician revenues. Combined with rising COVID-19 rates, these trends offer cause for concern despite productivity and revenue improvements for the quarter, according to the latest issue of Kaufman Hall's Physician Flash Report.

For hospitals, actual margins remained narrow. The median Kaufman Hall hospital Operating Margin Index was 3.2% in July, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. Operating Margin was down 7% year-to-date compared to the first seven months of 2019 without CARES Act funding, due in part to rising expenses for higher acuity cases, including COVID-19 patients. Compared to losses seen early in the pandemic in 2020, however, Operating Margin jumped 83.9% year-to-date (YTD) without federal aid. Hospitals in the South experienced the greatest year-over-year drop in margins as the region grappled with high rates of the Delta variant.  

Inpatient Discharges fell 9.2% YTD compared to the first seven months of 2019. Adjusted Discharges and Emergency Department (ED) Visits also fell below pre-pandemic levels, at 3.9% and 13.1% YTD, respectively. Operating Room Minutes were essentially flat compared to 2019. 

Revenues and expenses both increased versus pre-pandemic levels. Compared to the first seven months of 2019: 

  • Inpatient Revenue was up 3.7% YTD 
  • Outpatient Revenue rose 10% YTD  
  • Total Expense per Adjusted Discharge increased 14.1% YTD 
  • Labor Expense per Adjusted Discharge rose 12.5% YTD  
  • Non-Labor Expense per Adjusted Discharge jumped 14.6% YTD 

Physician groups across the country saw worsening performance across physician investments and expenses in the second quarter compared to pre-pandemic performance in Q4 2019. The median Investment/Subsidy per Physician Full-Time Equivalent (FTE) was $232,583 for the second quarter, up 16.5% from Q4 2019. 

Kaufman Hall release

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