Hospital leaders are concerned about the financial future of their institutions without a COVID-19 vaccine or treatment

Almost three-quarters of hospital leaders worried for organization's financial viability

October 22, 2020
by John R. Fischer, Senior Reporter
Almost three-quarters of hospital executives are worried about how their organizations will fare financially without an effective treatment or vaccine for COVID-19.

That’s the sentiment that Kaufman Hall found and reported in its “2020 State of Healthcare Performance Improvement Report: The Impact of COVID-19.” The firm adds that one-third of respondents saw operating margins drop in excess of 100% in the second quarter of 2020 compared to the same time period in 2019.

"The challenges brought on by the COVID-19 pandemic have affected nearly every aspect of hospital financial and clinical operations," said Lance Robinson, managing director of Kaufman Hall. "Organizations have responded to the challenge by adjusting their operations and strengthening important community relationships."

More than 22% saw expenses rise by more than 50%. The greatest of these increases has been for personal protective equipment (52% of respondents) and nursing staff labor (34%). Keeping up with these added costs has been challenging due to the substantial drop in volumes that have turned the operating margin of many organizations from positive to negative, especially in the early months of the pandemic. While volumes did start to recover over the summer, oncology is the only area where over one-half of respondents (60%) have seen volumes return to more than 90% of pre-pandemic levels.

Hospitals in the first few months of the pandemic saw a 150% year-over-year decline in operating margins. Decreases were primarily driven by restrictions on surgical and elective operations and led many not-for-profit hospitals previously operating on thin margins into high amounts of debt, according to Kaufman Hall’s National Hospital Flash Report in April. A follow-up report in September found margins to still be down 7.9 percentage points since the start of the year compared to the first eight months of 2019 (2.3 percentage points down when including federal aid).

Almost all respondents (95%) have worked to minimize exposure to other patients in waiting rooms, with 73% creating “clean” facilities for non-COVID patients. In addition, 75% increased monitoring and resources to reduce staff burnout and address issues of mental health to combat the impact of the pandemic on healthcare workers.

Despite these negative findings, some good has come out of the situation, with 56% of respondents seeing 100% growth in the number of telehealth visits their organizations provided, particularly in the early months of the pandemic. And while telehealth utilization has dropped somewhat as providers reopen, it is still well above pre-pandemic levels.

Another observation is the retention of strong merger and acquisition activity among healthcare systems, with the average size of seller by annual revenue remaining at historically high levels, at just under $400 million in Q3. This was chalked up to the pandemic creating new pathways for deals.

"Some processes that required more careful or rigorous consideration of strategic rationale, or that may have involved parties not as familiar with one another, may require traditional in-person meetings, and are having their timelines impacted,” Anu Singh, M&A practices leader and managing director at Kaufman Hall, told HCB News earlier this month. “In other contexts, where the path to alignment, common view of strategic vision and/or an underlying set of relationships were present or easy to coalesce around, avenues like Zoom and other video formats have allowed for partnerships to flourish and even surpass timelines of more traditional processes."

Hospital executives expect digital and ambulatory strategies to grow in significance, with 31% already seeing more consumers seeking care from retail-based clinics, such as CVS or Walgreens. In addition, respondents are seeing new levels of collaboration among different parts of health systems, yielded returns on pre-pandemic investments in data and analytics, and stronger hospital relationships with schools, local and state governments, and community organizations.

Responses came from a nationwide survey issued in August 2020, with 96% from hospitals or health systems. The majority of respondents were executive leadership (55%) or finance roles (39%).