Report: Hospitals continue to see tight margins as Delta variant raises concerns

Hospital revenues and volumes are on an upswing, but growing expenses are still offsetting gains in these areas, especially as cases caused by the Delta Covid-19 variant continue to rise.

Though hospital operating margins have improved significantly from the first six months of 2020, they remain tight as the spread of the coronavirus Delta variant raises uncertainties, according to a new report from healthcare consultancy Kaufman Hall.

The median operating margin index — which is comprised of the national median of Kaufman Hall’s dataset adjusted for allocations to hospitals — was 2.8% in June, without taking into account funding from Coronavirus Aid, Relief, and Economic Security Act. With the funding, it was 4.3%.

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This represents an 89.5% jump from the first six months of last year, not including CARES Act funding, and a 48.7% hike when the funding is included, according to the report, which used data from over 900 hospitals gathered monthly during the last three years.

Volumes, too, have experienced gains from 2020, but remain down versus pre-pandemic levels. For example, adjusted discharges rose 10.1% from January to June of this year compared with the same period last year but dropped 4.4% versus the first six months of 2019. Similarly, emergency department visits rose 3.2% year-to-date versus 2020 but were down 14.8% compared to 2019.

Despite these uneven volumes, hospital revenue was up this year so far compared to both 2019 and 2020. This was partly due to rising outpatient revenue, the report states. Gross operating revenue from January to June, not including CARES Act funding, rose by 18.2% compared with the first six months of last year and by 7.9% versus 2019. Outpatient revenue jumped 24.3% year-to-date from 2020 and 9.6% from 2019.

But expenses continue to rise, offsetting increases in revenue and volumes, the report shows. Total expenses rose 8.5% during the first six months of this year compared with the same period last year, and it jumped by 9.4% compared with January to June of 2019.

“Rising expenses are contributing to relatively tight hospital margins, even as revenues and volumes continue to show signs of improvement,” said Erik Swanson, senior vice president of data and analytics at Kaufman Hall, in a news release. “And the increasing spread of the Delta Covid-19 variant may stifle further recovery in the coming months.”

The Delta variant accounts for a vast majority (93%) of new cases reported during the last two weeks of July, according to data from the Centers for Disease Control and Prevention.

As the pandemic has demonstrated, cases can accelerate quickly, which means that hospital margin gains are fragile.

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