- Higher expenses for labor, drugs and supplies, along with the cost of care delayed during the pandemic, is likely to continue to stress hospitals' financial health throughout this year, according to a new analysis from Kaufman Hall funded by the American Hospital Association.
- The report estimates U.S. hospitals will lose $54 billion in net income over 2021, even taking federal relief funds from the Coronavirus Aid, Relief, and Economic Security Act passed in March 2020 into account.
- But the analysis, which looks at the first and second quarter results of 900 U.S. hospitals and projections for the remainder of the year, should be taken with a grain of salt as previous predictions from the hospital lobby on provider losses in 2020 were likely overblown, according to outside research. And despite the headwinds, the industry continues to be highly lucrative. All but one major for-profit U.S. system posted a profit in the first quarter, while many saw significant year-over-year income jumps in the second.
The coronavirus continues to roil the U.S., with the spread of the highly contagious delta variant contributing to the rolling seven-day average of new hospital admissions of COVID-19 patients increasing from 1,900 in mid-June to almost 11,200 by mid-September, according to data from the Centers for Disease Control and Prevention.
"While many hospital leaders hoped 2021 would provide an opportunity to return their organizations to greater financial stability after the severe losses seen in 2020, those hopes are dimming as the virus continues to circulate throughout the population," according to the new report.
Providers are reporting seeing sicker patients as the pandemic continues, requiring longer lengths of stay and consuming more resources than before COVID-19 hit, while outpatient visits continue to be depressed compared to 2019.
Additionally, ongoing staffing shortages and pervasive burnout among healthcare workers have resulted in hospitals spending more resources to retain existing employees or attract contract or travel nurses to make up the deficit.
As a result, expenses have increased dramatically in 2021 as hospitals bear the costs of treating greater numbers of high-acuity inpatient cases and the labor and resources associated with that.
Total expenses per adjusted discharge, which approximates how much hospitals need to spend per patient, are up 15% compared to before the pandemic for hospitals nationwide, Kaufman Hall found.
The largest increase has been in drug costs, with drug expenses per adjusted discharge up 24%, while supply expenses are up 17% per discharge.
These trends could lead median hospital margins to be 11% below pre-pandemic levels by year's end, Kaufman Hall said. The analysis warned the actual outcome could be worse, as the projections don't factor in recent increases in COVID-19 cases from the delta variant, which could drive margins even lower.
"Hospitals are experiencing profound headwinds that will continue throughout the rest of 2021," AHA CEO Rick Pollack said in a statement.
More than a third of hospitals are expected to end 2021 with negative margins, Kaufman Hall found. However, though that projection sounds drastic, it's only a small increase from 2019, where 25% of U.S. hospitals ended the year with negative margins.
And, actual performance results from the first half of 2021 show the percent of negative operating margins has actually improved, from 47% in the first quarter to 38% in the second.
Additionally, most major for-profit and nonprofit systems posted big profits in the second quarter.
For-profit hospital operators saw their volumes largely rebound in the second quarter, as COVID-19 cases decreased and more patients sought out previously delayed care.
Tenet, HCA Healthcare, Universal Health Services and Community Health Systems all beat Wall Street expectations on earnings and revenue, with profits of $120 million, $1.7 billion, $325 million and $6 million, respectively.
As for nonprofits, an Axios analysis released Tuesday of 24 major tax-exempt systems' earnings found they had a combined profit of $11.9 billion in the second quarter.