May 27, 2020

As we inch ever closer to the end of May, it might be a good time to look back and take stock of the way in which the coronavirus pandemic has affected our nation’s citadels of caregiving.  America’s hospitals have always represented impregnable bastions of well-placed hope and high-tech healing; but they have been mightily battered in recent months by the massive effects of a microscopic pathogen.  We know damage has been done, but to what extent?

According to a national study undertaken by healthcare consulting firm Kaufman Hall in May 2020, April was a devastating month for hospitals across the country from a financial perspective.  Despite the expectations of some that hospitals would be overflowing with patients due to the spread of COVID, in actuality a sharp decline in overall patient volume was noted.  This, along with a prolonged suspension of so-called elective surgeries, have translated to record-setting declines in hospital revenue.  The following seeks to illustrate the scope of the fiscal damage and to assess where hospitals may go from here.

A Precipitous Plunge

The study found that hospitals’ “operating EBITDA margin” (OEM) fell by 174 percent when compared to the same period last year.  Nationally, hospital OEM decreased 118 percent from March 2020 through April, as facilities faced the first full month of the virus’ impact. Operating margins fell 282 percent from April 2019.  Such margins decreased 120 percent last month as compared with the previous month. Median hospital operating margins fell to –29 percent, as measured by the Kaufman Hall Hospital Operating Margin index.

According to the report that summarized the study’s findings, “April’s devastating results follow a challenging March, when hospitals first saw the pandemic cause across-the-board volume declines starting mid-month.” Operating room minutes for April 2020 fell 61 percent compared to April 2019, while discharges fell 30 percent over the same 12-month period.  Emergency department visits dropped 43 percent during the same time period, and outpatient revenues decreased by 50 percent.   Finally, inpatient revenues saw a decrease of 25 percent when comparing April 2020 numbers to those in April 2019.

The report indicated that the plunge in profit margins occurred despite aggressive cost-cutting measures undertaken by hospitals.  This is to be expected since the loss of the major bulk of high acuity cases coupled with the continuing maintenance of necessary overhead expenses will inevitably combine and inure to the overall financial detriment of these institutions.

Where Do We Go from Here?

The report attempted to address the future when it noted that “even as hospitals look to resume non-urgent procedures, there is widespread uncertainty as to when patients will return, with the virus’ path still unpredictable and nearly 40 percent of consumers uncomfortable seeking care at a hospital.”  That reluctance on the part of patients may be true, and a recent survey conducted by MiraMed in mid-May indicated that there are differing expectations among healthcare providers when it comes to a return to pre-COVID case levels.  While not a scientific poll, we asked certain OR providers when they expected to see “normal” elective surgery case volumes.  Over 100 respondents provided the following predictions:

Of course, no one can be one hundred percent certain as to the future course of this virus.  Will there be a sharp tapering off in the summer months?  Will there be a second wave next winter?  If there is a second wave, will there be another shut down of elective surgeries?  Clearly hospital executives have their work cut out for them.  Their mission is to get up and running so as to make their institutions as financially viable as possible while simultaneously planning for the next wave and the next “what-ifs.”

According to the Kaufman Hall survey report, there will be “major changes” that will need to be addressed by facility and system executives.  These changes are expected to revolve around the following:

• Care models, with the rise in telehealth and new needs to manage infectious diseases
• Cost structure, as organizations seek to regain financial stability in the face of steep revenue losses and possibly permanent changes in demand
• Competitive dynamics, as organizations of different scales and capabilities position themselves for the post-COVID world

The report concludes that the results from the April study “clarify the perilous position that hospitals are in, as well as the potential magnitude of change.”  While this may sound rather ominous to some, others will accept these new realities as simply a new set of challenges to be overcome.

At the very least, each hospital CEO, CFO and/or administrator will need to perform the following assessments:

1. What has been the financial impact of the “COVID effect” on our hospital thus far?
2. What is the financial projection for each of the next two quarters based on the COVID effect?
3. What should be done to ramp up resources (human and otherwise) to meet these projections?
4.  Do we have the financial wherewithal to deploy these resources?  If not, when will we?
5. What internal policies and processes need to change now in order to meet the demands of the next two quarters and beyond?
6. Are there any other strategies that should be considered to increase the short-term and long-term financial wellbeing of the facility/system?

Grappling with these questions will enable hospitals to move toward some semblance of stability and a renewed confidence going forward.  If we can help you in this process, or provide resources or insight, please reach out to us at info@miramedgs.com.  We want to be your partner in progress and profitability.