Hospital Profitability Declines Due to Weak Volumes, Revenues By Jacqueline LaPointe (email)

"Margins indicating hospital profitability, including EBITDA and operating, fell as volume and revenue performance weakened in November 2019.

An analysis of November 2019 data from over 800 hospitals revealed weakened hospital profitability as margins significantly declined compared to the previous month.

Conducted by consulting firm Kaufman Hall, the National Hospital Flash Report from December 2019 detailed the drop in margins. The firm found that the operating earnings before interest, taxes, depreciation, and amortization (EBITDA) margin was down 14.5 percent of 200.1 basis points (bps) year over year while operating margins experienced a 21.3 percent or 208.1 bps decline.

Month over month, operating EBITDA margin dropped by 14.3 percent in November, or 215.6 bps, and operating margin decreased by 23.4 percent or 239.2 bps.

"A one month report of hospital profitability may not be a solid indicator for a hospital, especially during a holiday season. Many patients chose not to be hospitals during this time of year. However, profitability margins are small, to begin with, except for some exceptional institutions. The fragility of even major hospitals such as the former Hahnemann Medical School and it's supporting hospital in Philadelphia supports this concern. Hospitals in highly competitive markets may be impacted more."

Hahnemann Sale and Closure

Researchers attributed the drop in hospital profitability to weak performance across volumes and revenues, as well as higher-than-excepted expenses.

“Expense data from 2018 and 2019 illustrate the rough road hospitals and health systems face in trying to get a handle on the high costs of providing healthcare,” the analysis stated. “While year-over-year variances show dramatic fluctuations from month to month, overall expenses continue to creep steadily upward.”

In November 2019, both labor and non-labor expenses rose. The most recent National Hospital Flash Report showed that total expense per adjusted discharge increased by 2.7 percent year over year and 5.2 percent month over month. Other metrics indicate a general decline in revenues, an increase in expenses and overall decreases in volume and income.

It is predicted this trend will be reversed in the first quarter of 2020. These predictions are also subject to further unknown changes in CMS reimbursements.