COVID-19 pandemic drives April operating margins down 282% for hospitals

May 22, 2020

Steep volume and revenue declines hit U.S. hospitals hard in April, driving Operating Margins down 282% compared to the same period last year and 326% below budget, according to a new Kaufman Hall report. 

The damage has been swift, as April was just the first full month for hospitals battling the effects of the COVID-19 pandemic. The median Operating Margin fell to –29% and the median Operating EBITDA Margin ended the month at –19%, down 174% compared to the same period last year and 191% below budget. These and other findings are highlighted in the May issue of Kaufman Hall’s National Hospital Flash Report, which draws on data from more than 800 hospitals. 

“April was the worst month ever for hospital finances,” said Jim Blake, managing director, Kaufman Hall. “Our nation’s hospitals are in a perilous position. They are serving as the frontlines of our battle against this virus, but the pandemic is threatening their fundamental financial viability at a time when we need them most. The road to recovery will be difficult, and our healthcare system will be forever changed.” 

April’s devastating results follow a challenging March, when hospitals first saw the pandemic cause across-the-board volume declines starting mid-month. Surgery volumes have seen the most significant declines, as providers and patients delay non-urgent procedures to stem the virus’ spread and reserve capacity to treat infected individuals. Operating Room Minutes fell 61% in April compared to the same period in 2019, more than triple the declines seen the month before. 

Discharges fell 30% year-over-year in April, and Emergency Department Visits dropped 43%. Revenue results were down across most measures, but outpatient services took the biggest hit. Outpatient Revenues fell 50% year-over-year and 51% below budget, while Inpatient Revenues declined 25% year-over-year and 30% below budget. Total Gross Revenue fell 30% compared to April 2019 and 33% below budget expectations. 

Expenses remained high in April relative to the much lower numbers of patients. Total Expense per Adjusted Discharge rose 59% year-over-year, while Labor Expense per Adjusted Discharge was up 63% and Non-Labor Expense per Adjusted Discharge rose 58%. 

The losses came despite an infusion of $50 billion from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and despite aggressive cost-cutting efforts. While total expenses declined slightly, those decreases did not come close to keeping up with steep volume declines. This suggests that hospitals’ efforts to reduce costs through mass furloughs, significant pay cuts for executives, and other measures have been insufficient thus far to make up for lost volumes. 

Kaufman Hall has the report.  

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