Hospital operating margins and earnings showed noteworthy improvements between June and July even without the help of federal aid as volumes continue to recover, a Kaufman Hall report found.
While operating margins declined 2% year-over-year in July, they spiked 24% from June and were 15% above budget excluding grants received under the Coronavirus Aid, Relief, and Economic Security Act, the report found. Operating earnings before interest, taxes, depreciation and amortization margins fell 5% year-over-year but increased 12% month-over-month and were 9% above budget not counting federal aid.
The report, Kaufman Hall's National Hospital Flash Report, was based on July data from over 800 hospitals. It said the margin improvement between June and July is likely because of a backlog in demand for services that were shut down in the early months of the pandemic.
"COVID-19 has created a highly volatile operating environment for our nation's hospitals and health systems," Jim Blake, the report's author and a managing director with Kaufman Hall, said in a statement.
In the seven months spanning January to July, hospital operating margins were down 28% in 2020 compared with the same period in 2019. That's factoring in grants received under the CARES Act, without which margins would be down 96% in that time.
Kaufman Hall attributed the year-over-year declines to flat gross revenue, continued high per-patient expenses and a fifth consecutive month of volumes falling below 2019 performance.
Volumes continued to fall in July compared with July 2019 but seemed to be recovering from June. Discharges were down 7% compared with July 2019 but up 6% compared with June 2020.
Emergency department volumes have been hardest hit. They were down 17% in July year-over-year, the fifth straight month of double-digit year-over-year declines in emergency department visits for hospitals nationwide, the report found.
On the expense side, Kaufman Hall found total expenses were up 1.4% year-over-year and total labor expenses were up 1% in that time. Total non-labor expense increased 2.3% year-over-year. Within that, purchased services saw the biggest year-over-year expense uptick in July at 6%. Drugs were up 4.8% in that time and supplies were up 3.2%.
While year-to-date increases in actual expenses are minimal, the report said they show that expenses are growing even as hospitals are seeing fewer patients.
Performance depended partly on location. Not counting CARES Act funding, hospitals in the Northeast saw the highest year-over-year decline in operating EBITDA margins: 30%. Hospitals in the West and Midwest also declined year over year. Hospitals in the Great Plains and South performed above budget for operating EBITDA margins, both up 8% year-over-year in July.
Size played a role, too. Larger hospitals with 300 to 499 beds saw the biggest year-over-year margin declines, at 14%. Hospitals with 200 to 299 beds and 500 or more were also down year-over-year. The smallest hospitals were outliers, with operating EBITDA margins up 32% year-over-year in July, which the report said was likely due to increased surgery volumes and better-than-expected revenue.
On the non-operating front, Kaufman Hall noted that the equities market continued to recover in July, with the S&P 500's year-to-date losses erased by surging tech stocks.