Hospitals sustain COVID-19 recovery but costs spike above pre-pandemic levels

By | June 30, 2021

Dive Brief:

  • Providers are continuing to recover from the economic trauma inflicted by the COVID-19 pandemic, but that recovery remains uneven, according to the latest monthly hospital and physician reports from Kaufman Hall.
  • Overall, patient volumes and revenue have made dramatic leaps compared to a year ago, when the country was all but shut down by the pandemic and many hospitals had postponed elective surgical procedures. Nevertheless, they remain below 2019 numbers in many categories. Larger hospitals have recovered more robustly than smaller facilities.
  • Meanwhile, expenses have outstripped 2019 numbers by a significant margin, indicating that rising costs will continue to be an issue in the months and perhaps even years to come. And while physician productivity was up, their compensation has barely budged.

Dive Insight:

A year ago, hospitals and physician practices were devastated by the COVID-19 pandemic. They have rebounded since the low points of the spring and summer of 2020.

Although hospital margins remain low — Kaufman Hall pegged them at an average of 2.6% nationwide in May exclusive of Coronavirus Aid, Relief, and Economic Security Act funding — they still rose 95.2% between January and May compared to the same period in 2020.

With CARES funding factored in, operating margins rose 56.6% during the first five months of the year. Although the federal relief revenue has appeared to have done its job in keeping providers financial stable, they are still asking for more flexibility in terms of spending deadlines.

Meanwhile, patient volumes were also on the rise. Adjusted discharges were up 9.1% between January and May compared to the prior year. However, they were down 7.1% compared to the same period in 2019.

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Costs were up significantly compared to the pre-pandemic period. While total expenses per adjusted discharge were actually down 1.7% for the first five months of the year compared to the same period in 2020, they were up 16.6% compared to the January to May period in 2019. And total expenses were up 7.8% through May compared to 2020, and up 8.7% compared to the same period in 2019. Labor expenses were up 7.1% compared to 2020 and 9.2% compared to 2019.

Meanwhile, physician compensation was relatively flat, rising 1.1% for the first five months of the year compared to the same period in 2020, even though productivity was up 3.6% in the first quarter of 2021 compared to the first quarter of the prior year. Net revenue per physician was up 9.4% in the first quarter of the year compared to the first quarter of 2020. Meanwhile, total direct expenses per physician were up 4% during the first quarter of 2021.

“The first quarter results show positive signs of stabilization for the physician groups across the country after many months of turmoil from COVID-19,” Matthew Bates, a Kaufman Hall managing director, said in a statement. “Going forward, they face new uncertainties as expenses continue to rise, the number of employed physicians grows, and the average investment needed to subsidize physician revenues remains at unsustainable levels.”

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