Recent increases in COVID-19 cases from the Delta variant could drive margins even lower in the second half of the year. (Photo: Shutterstock)
U.S. hospitals are facing significant losses as the pandemic continues into the fall season. Kaufman Hall, in a report prepared for the American Hospital Association, projects that hospitals nationwide will lose an estimated $54 billion in net income over the course of the year, even taking into account federal CARES Act funding from last year.
"According to our estimates, more than a third of U.S. hospitals will maintain negative operating margins through year's end," according to the report. "However, the uncertain trajectory of the Delta and Mu variants in the U.S. this fall could result in even greater losses."
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The report outlines several trends that could affect hospital profitability for the remainder of 2021 and beyond:
Median hospital margins could be 11% below pre-pandemic levels by year's end. Kaufman Hall's latest projections show that hospital margins will remain below pre-pandemic levels throughout 2021. Hospital margins are expected to remain close to second-quarter performance, shifting only slightly to 10% and 11% below pre-pandemic levels in the third and fourth quarters, respectively. However, it is important to note that these projections do not factor in recent increases in COVID-19 cases from the Delta variant, which could drive margins even lower in the second half of the year.
More than a third of hospitals could end 2021 with negative margins. Significantly more hospitals will close the year with negative margins than before COVID-19. The latest surge in cases could push more hospitals to operate with negative margins. The proportion of hospitals ending the year with negative margins likely will be higher than the 25% seen in 2019.
Higher-acuity patients and lower share of outpatient revenues contribute to losses. The median length of stay is up 8% year-to-date compared to 2019 for most hospitals (indicating higher-acuity patients) and up as much as 18% for some hospitals with 500 or more beds.
Expenses continue to escalate as hospitals care for sicker patients. Expenses have increased dramatically in 2021 as hospitals bear the costs of treating greater numbers of high-acuity, inpatient cases. Even with hospital actions that have improved overall labor efficiency, the cost of labor has risen significantly because of labor shortages, hazard pay, and other causes.
"Our projections continue to show that hospitals' financial status will remain below pre-pandemic levels throughout the second half of the year," the report concluded. "Compared to before the pandemic, median hospital operating margins will be down, and a greater percentage of hospitals will close the year with negative operating margins."
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Alan Goforth
Alan Goforth is a freelance writer in suburban Kansas City. In addition to freelancing for several publications, he has written a dozen books about sports and other topics.
