Latest Data Show Continued Uncertainty for U.S. Hospitals, Health Systems, and Physician Groups Amid Ongoing COVID-19 Pandemic

CHICAGO, April 26, 2021 /PRNewswire/ -- The COVID-19 pandemic continues to drive uncertainty for the nation's hospitals, health systems, and physician groups, as signs of progress are tempered by narrow margins, low patient volumes, and high costs, according to two new Kaufman Hall reports.

U.S. hospitals and health systems saw mixed performance in March, as national COVID-19 metrics plateaued early in the month before climbing steadily again with increased spread of COVID-19 variants, as shown in the latest issue of the National Hospital Flash Report. Hospital margins remained narrow. The median Kaufman Hall hospital Operating Margin Index was 1.4%, not including federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding. With the funding, it was 2.0%.

"We expect to see additional margin gains in the months ahead, especially in comparison to record-poor performance in the early months of the pandemic," said Jim Blake a managing director at Kaufman Hall and publisher of the National Hospital Flash Report. "Over the course of 2021, however, we project hospital margins could be down as much as 80% and revenues down as much as $122 billion compared to pre-pandemic levels as hospitals continue to feel the dire repercussions of COVID-19."

Physician groups experienced volatility throughout 2020 as a result of the pandemic. Physician productivity, compensation, and revenues for the year all fell below 2019 results. Meanwhile, the average investment required to supplement physician revenues rose, according to year-end analyses featured in the new quarterly issue of Kaufman Hall's Physician Flash Report.

"Healthcare leaders should take a balanced approach with regard to meeting patient demand as they look to grow their physician strategies moving forward," said Cynthia Peters Arnold, a senior vice president at Kaufman Hall. "This will require rethinking the investment needed to pay physicians, setting clear clinical quality and economic targets, and establishing a physician management system with accountability for both physicians and administrators." 

Hospitals saw year-to-date margins increase in March, while volumes continued to decline. Revenues and expenses rose across most metrics compared to the first three months of 2020. Operating Margin increased 34.5% (2.5 percentage points) year-to-date, not including CARES funding. With the funding, Operating Margin increased 45.7% (3.2 percentage points) year-to-date. Year-over-year margin increases were particularly high, largely due to measuring March 2021 performance against the same period last year, when hospitals were hit with devastating losses from national shutdowns and halting of outpatient procedures during the first month of the pandemic. Operating Margin, for example, jumped 128.4% or 14.5 percentage points year-over-year in March, without CARES.

Volumes decreased across most metrics year-to-date. Adjusted Discharges were down 7.4% and Emergency Department Visits fell 19.2%. Operating Room Minutes rose 3.1% from January to March compared to the same period in 2020. Gross Operating Revenue (not including CARES) rose 4.4% year-to-date, while both Outpatient and Inpatient Revenue rose less than 4%. Total Expense per Adjusted Discharge, Labor Expense per Adjusted Discharge, and Non-Labor Expense per Adjusted Discharge all increased about 15% compared to the first three months of 2020.

Physician practices saw some signs of recovery in the second half of 2020, following significant disruption in the early months of the pandemic. The median Investment/Subsidy per Physician Full-Time Equivalent (FTE) fell 26% from a high of $289,268 in the second quarter to $213,118 in the fourth quarter, indicating the beginning of a return to pre-pandemic performance.

For the year overall, the median Investment/Subsidy per Physician FTE rose 6.8% from 2019 to $239,656, largely due to low patient volumes early in the year. Physician Compensation per FTE declined 1.6% from 2019 to $303,181 in 2020, as many health systems froze compensation levels during the pandemic. Overall physician productivity was down for the year, with Physician work Relative Value Units per FTE falling 8.4% from 2019 to 2020 due to the impacts of the pandemic.

Net Revenue per Physician FTE fell 6.3% from 2019 to a median of $566,773 in 2020 due to pandemic-fueled declines in patient volumes. Total Direct Expense per Physician FTE (including advanced practice providers or APPs) fell 4.9%—more than $40,200—from 2019 to $782,518 in 2020. Contributing factors included volume declines that led to lower overall expenses, and reductions in staff availability as many clinicians—particularly female physicians and APPs—had to stay home to care for children and others due to school closures and nationwide shutdowns.

The National Hospital Flash Report draws on data from more than 900 hospitals.

The Physician Flash Report includes national data from Axiom's Comparative Analytics from Syntellis Performance Solutions, which contains data on nearly 100,000 providers representing more than 100 specialties. 

Kaufman Hall experts are available for comment, please contact Tiffanie Thomas at [email protected].

About Kaufman Hall
Kaufman Hall provides management consulting solutions to help society's foundational institutions realize sustained success amid changing market conditions. Since 1985, Kaufman Hall has been a trusted advisor to boards and executive management teams, helping them incorporate proven methods, rigorous analytics and industry-leading solutions into their strategic planning and financial management processes, with a focus on achieving their most challenging goals.

Kaufman Hall services use a rigorous, disciplined, and structured approach that is based on the principles of corporate finance. The breadth and integration of Kaufman Hall advisory services are unparalleled, encompassing strategy; financial and capital planning; cost transformation; treasury and capital markets management; and mergers, acquisitions, partnerships, and joint ventures.

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