August 2019
Profitability
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EBITDA Margin by Region *
As observed in previous months, profitability was variable across the nation’s geographic regions. The Midwest achieved the largest yearly gains in profitability, with Operating EBITDA margins increasing about 15 percent (or nearly 90 bps). This is driven primarily by increases in Adjusted Patient Days, which resulted in a more than 10 percent year-over-year increase in NPSR per Adjusted Discharge in the Midwest.
The Northeast/Mid-Atlantic experienced the largest decline in profitability, with Operating EBITDA Margins weakening by more than 10 percent (100 bps) year over year. Stagnate inpatient volumes and increasing supply, drug, and purchased service expenses contributed to these declines. The remaining areas of the country experienced modest improvements in profitability in the range of 1 to 5 percent.
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Absolute Change
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Absolute Change
National Profitability Observations
The nation’s hospitals saw improvements to profitability in July, following significant month-over-month declines in June. EBITDA Margin improved 4.7 percent, or 77.5 basis points (bps) month over month, while Operating Margin improved 8.8 percent, or 105 bps. This marks the sixth of the past seven months of improved hospital profitability. Year-over-year profitability also demonstrated gains, with Operating EBITDA Margin up 3.9 percent, or 56 bps, and Operating Margin up 8.8 percent, or 81 bps.
Higher inpatient, emergency department, and operating room volumes contributed to the July increases, resulting in revenue gains outpacing expense growth. Operating Margin growth at nearly twice the rate of EBITDA Margin likely is indicative of declining depreciation and interest spend.
While these trends generally are good news for the industry, the improvements do not necessarily mean that hospitals are achieving sufficient margins. Also, margins of individual hospitals do not necessarily reflect those of overall health systems. In addition, previous trends indicate that when volumes soften and revenues flatten, hospitals lack the flexibility in their expense structures to maintain favorable profitability trends.
Unless noted, figures are actuals and medians expressed as percentage change
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
(Click to enlarge)
Operating EBITDA Margin
0.2%
4.7%
3.9%
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Operating Margin
5.4%
8.8%
8.8%
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Unless noted, figures are actuals and medians expressed in basis points
Profitability % Change
Profitability Absolute Change
Budget Variance
Month Over Month
Year Over Year
Year Over Year Distributions
(Click to enlarge)
Operating EBITDA Margin
5.5
77.5
56.0
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Operating Margin
38.0
105.0
81.0
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By Region
National Observations
By Bed Size
EBITDA Margin by Bed Size
July’s strong profitability was not evenly distributed across all bed sizes. Mid-size community hospitals, those with 200-499 beds, drove the nation’s improvements. This cohort demonstrated Operating EBITDA Margin gains of 15 percent or more (or more than 200 bps), driven by effective management of labor productivity. Conversely, the nation’s smallest and largest hospitals experienced flat or slightly declining profitability. Hospitals with 100-199 beds experienced the largest year-over-year decline, with Operating EBITDA Margins down nearly 5 percent, or about 40 bps. This is not entirely unexpected, as this bed-size group experienced several months of strong margin growth.
In a reversal of a four-month positive trend, profitability stagnated at hospitals with more than 500 beds, due to significant expense increases at these organizations compared to other bed-size cohorts.
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By Region
National Observations
By Bed Size
©2019 Kaufman, Hall & Associates, LLC
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