While COVID-19 relief measures boosted not-for-profit hospitals' cash on hand, the pandemic sunk their median operating margin, according to a new report.
Not-for-profit hospitals recorded a median operating margin of 0.5% and operating cash flow margin of 6.7% in fiscal 2020, which were down 2.4% and 8.4% respectively year over year, according to Moody's Investors Service preliminary median report that gathered data from June 30 and Sept. 30 of last year. Medicare advanced payments, deferral of payroll taxes, suspension of retirement contributions and deferral of capital spending led to substantially higher median days cash on hand, which rose from 44 days to 246.9 days.
Although hospital executives expected a significant drop off in commercially insured patients as millions lost their employer-sponsored health insurance, Medicare patient revenue slightly increased from 2019 to 2020. Revenue from Medicaid and commercial payers remained the same while self-pay patient revenue increased from 5.1% to 5.5%. Patients were also sicker, which generated higher reimbursement rates.
"I couldn't believe the complete absence of payer-mix change," said Jeff Goldsmith, founder and president of healthcare consultancy Health Futures. "The fact that we only have three to six months of COVID-19 financial data may be a piece of the explanation. This has also been a rolling crisis; it's not something that's been uniform in all parts of the country."
Emergency room volumes aren't expected to fully recover, which is a key referral source for hospitals, Goldsmith noted. There also might be some long-term impacts related to hospitals' non-operating revenues, he said.
"I think there is a longer-term risk to hospital finances that stretches out well beyond the end of this year," Goldsmith said.
Expense growth outpaced revenue gains despite staffing reductions and other cost-cutting efforts. Median operating expenses grew 4.7% in fiscal 2020 compared to 3% revenue growth. Expense growth was down from 5.7% in 2019.
While most not-for-profit hospitals experienced decreased revenues due to a reduced demand for patient services, they responded quickly with efforts to manage expenses and reallocate resources, said Julie Seymour, partner at Nixon Peabody.
"Despite their expense management efforts, expenses were also increased by the need for PPE, cleaning, testing and other expenditures related to COVID," she said. "Many of the expense reductions have since been reversed, as providers deal with a backlog of appointments, procedures and surgeries."
Some providers bridged access gaps through telehealth, but it did not offset the loss of revenue from in-person care, Seymour added.
Listen to Modern Healthcare's Beyond the Byline for more analysis on COVID-19's impact on hospital finances.