KHA Perspective

June 2018

Kaufman Hall Perspective

Kaufman Hall Perspective

May was a strong month for hospitals, with median operating margin and operating EBIDA both improving by 60 basis points over the prior year. Month-over-month, profitability increased 24 percent, with a 12 percent increase over the budget plan. This increase is being driven in part by favorable performance on the expense side, which outpaced slight decreases in revenue.

While there was an improvement in productivity in May’s numbers, the long term trend has been essentially flat. Given the dynamics on economy and wage inflation as discussed in the non-operating section, hospitals could increasingly be at risk for losses if they do not actively improve productivity. As such, our June spotlight is focused on Workforce Optimization.

Nationally, hospital volumes were strong in May, with solid year-over-year growth in both discharges and adjusted discharges. However, emergency department visits and operating room minutes decreased compared with the prior year’s performance. Similarly, length of stay decreased markedly across the country, with numbers that fell below budget in all regions.

In May, revenue per adjusted discharge declined slightly and posted below budget nationally as a result of the increased shift to outpatient care, which impacted smaller organizations especially heavily. Decreased reimbursement per case necessitates that hospitals develop the ability to better adjust operations in light of continuing revenue pressures.

As average length of stay decreased, FTEs per adjusted occupied bed improved, indicating better flexing of the workforce. If wage pressures heat up, further improvements in workforce productivity will be critical.

Most regions experienced unfavorable growth in bad debt and charity care year over year. The Northeast/Mid-Atlantic regions posted a 17 percent increase in bad debt and charity care year-over-year. Conversely, the South posted significant decreases in bad debt year-over-year. This may be due to changes in Medicaid coverage and/or access to affordable care.

Financial markets were strong in May. U.S. employment has shown consistent growth since early 2011, driving the Federal Reserve to raise its benchmark interest rate twice in 2018. Rates are expected to increase twice more before year’s end.

In May, U.S. stock markets performed slightly higher, with the Standard & Poor’s 500 increasing by 2.9 percent. The market volatility seen earlier in the year was absent in May. World stock market performance was mixed, with the MSCI World Index up 0.7 percent but the MSCI Emerging Markets Index down by 4.5 percent.

U.S. Treasury and tax-exempt yields rallied in May, further flattening the borrowing yield curve.

Larger hospitals saw ED volumes grow year-over-year, while volumes in smaller EDs decreased. Conversely, only very small hospitals grew their OR minutes, while OR minutes in larger hospitals decreased. It will be important to monitor these trends to see whether they continue.

Hospitals expect profitability to be stronger in July, although numbers are expected to fall slightly under last year’s performance. Expectations are cautiously optimistic.

Perspective

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James Blake

Publisher

James Blake

Data Science and Analytics

Scott Engel

Erik Swanson

Will Newton

Samantha Schwind

Technology

Scott Engel

John Hughes

Data Operations

Jared Murray

Brian Buchholtz

Profitability, Dan Majka

Subject Matter Specialists

Profitability, Kristopher Goetz

Volume, Jason O’Riordan

Volume, Todd Fitz

Revenue, Jason Sussman

Revenue, Kimberly Neese

Expense, Therese A. Fitzpatrick

Expense, Hardik Dalal

Non-Operating, Matt Robbins

Non-Operating, Ilan Weisberg

Spotlight Contributors

Therese A. Fitzpatrick

Brian Cole

Rob Fromberg

Editorial

Carolyne Krupa

Todd Fitz

Jason O’Riordan

Kristopher Goetz

Brian Cole

Marketing

Rob Kunzler

John Howlett

Hillary Ervin

Kristina Wright

Interns

Cole Morgan

George Dyre

Daniel Davis

Special thanks to our digital publishing partner: Readz

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flashreports@kaufmanhall.com

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©2018 Kaufman, Hall & Associates, LLC

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