Two new reports from Kaufman Hall examine financial metrics at hospitals throughout 2018 and the early part of 2019.
KEY TAKEAWAYS
While profitability was not an issue, hospitals continue to face the obstacle of declining volumes.
Additionally, bad debt and charity care experienced a 2.4% year-over-year increase in 2018.
For the first two months of 2019, hospitals have reported positive profitability metrics compared to this time last year, which was defined by significant market volatility.
Health systems achieved operating margin growth of 5% in 2018 but suffered from continuing underperformance regarding patient volume trends, according to Kaufman Hall.
Two new reports look at financial indicators for hospitals over the past 14 months, specifically what is driving consistent revenue improvement but also what is contributing to unfavorable expnse trends.
Most notably, the rise of bundled payments for high acuity patients is resulting in higher reimbursements at the same time that less acute patients move into outpatient care, according to Kaufman Hall, leading to both improved revenues and declining patient volumes for hospitals.
Another metric of interest for hospital revenues was the 2.4% year-over-year increase of bad debt and charity care in 2018, part of several revenue indicators that Kaufman Hall stated were unfavorable to budget variance.
Meanwhile, every patient volume metric that was tracked showed deterioration throughout 2018 and underperformed relative to budget variance, with the 3.8% year-over-year drop in ER visits and operating room minutes leading the way.
Erik Swanson, vice president of Kaufman Hall, said that a major component was the accelerated decline in emergency department visits towards the end of 2018. He added that the inpatient-outpatient adjustment factor may be increasing but that is largely due to the consistent shift towards treating patients in an outpatient setting.
On the positive side, hospital operating EBITDA improved 5.9% year-over-year, while operating EBITDA margin shrank slightly by 0.2%. EBITDA margin improvement primarily came from the South and Great Plains region, while deterioration continued in the Northeast, Midwest, and West.
Additionally, researchers concluded that hospital leaders may have plateaued in their ability to maximize traditional labor management strategies, suggesting drastic and unconventional approaches may be in order.
“I think one thing though that’s tricky is as you’re watching people just reduce full-time employees (FTEs), that’s not enough,” Jim Blake, managing director at Kaufman Hall, said. “When you see volume shifts and you watch productivity, what you’re really watching is ‘are they flexing labor [management] well enough?’ or ‘are they optimized scheduling that labor well enough?'”
Swanson added that while the data indicates a plateauing regarding labor management costs, this must be viewed through the lense of traditional methods and not through more data-driven strategies like workforce optimization or clinical transformation.
Both Blake and Swanson said this could be a difficult leap for hospitals to make because most haven’t made the investment in such strategies to begin with and might only do so after encountering a “bad year” that encourages immediate action.
One area of Kaufman Hall’s data that surprised Swanson was that large health systems share the same variability risks as small hospitals, given that those organizations have larger scale to handle issues that would typically upend a smaller facility.
In contrast to the data from 2018, Kaufman Hall reported that hospitals have experienced positive metrics during the first two months of 2019,
However, Blake noted that while the year-over-year results for hospital profitability may seem like an significant improvement, the early part of 2018 was defined by significant market volatility.
“It’s important in terms of recognition of improvement versus deteriorating, but it’s still overall a little bit anemic,” Blake said.
Still, in February, hospital operating EBITDA improved 8.5% year-over-year and operating margin rose 14.8%, with each region of the country excluding the Great Plains posting year-over-year growth in operating EBITDA margin.
Three patient volume metrics showed year-over-year decreases though average length of stay was flat while operating room minutes and discharges improved by roughly 2%.
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