New Hospital Flash Report says hospitals fared better in 2021 than 2020 but still another challenging year

Feb. 1, 2022

Many providers ended 2021 in a stronger financial position relative to the first year of COVID-19 in 2020, as they learned to better navigate pandemic volatility. Yet overall performance remains down compared to pre-pandemic levels, according to Kaufman Hall’s latest National Hospital Flash Report and Physician Flash Report.

Kaufman Hall reports how the nation’s hospitals, health systems, and physician groups closed the second year of the pandemic amid ballooning expenses exacerbated by nationwide labor shortages and global supply chain challenges.

For hospitals, volumes rose throughout December, as the rapid spread of the Omicron variant led to a sharp increase in COVID-19 cases. The spike in cases drove a 98% increase in COVID-related hospitalizations. Compared to November, Adjusted Discharges rose 5.5%, and Adjusted Patient Days increased 3.9%. Emergency Department (ED) Visits also jumped 7.3%, a trend consistent with earlier surges as more patients show up in EDs with potential COVID-19 symptoms. Compared to the first year of the pandemic, 2021 saw an increase in severely ill patients requiring longer hospital stays, but key volume metrics remained below pre-pandemic 2019 performance.

Actual hospital margins remained thin, but above 2020 levels. The median Kaufman Hall Operating Margin Index for the year was 2.5% versus -0.9% for 2020, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the aid, it was 4.0% in 2021 compared to 2.8% in 2020. Increased volumes contributed to month-over-month margin increases. From November to December, the median change in Operating Margin rose 38%, not including CARES. With the aid, it increased 49.5%. Compared to December 2019, however, the median change in Operating Margin was down 14.7% without CARES.

Tight competition for healthcare workers pushed expenses up despite lower staffing levels. Total Expense per Adjusted Discharge was up 20.1% for the year versus 2019 and Labor Expense per Adjusted Discharge was up 19.1% over the same period. Non-Labor Expense per Adjusted Discharge increased 19.9% for 2021 versus pre-pandemic levels.

Employed physician groups ended 2021 with sizeable gains in physician productivity and revenues relative to the fourth quarter of 2020, but with mounting expenses and high levels of investments/subsidies required to support practice performance.

Kaufman Hall has the full report