July 2019
Profitability
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EBITDA Margin by Region ?
Profitability varied based on geographic region, with a nearly 370 bps difference between the most profitable (South) and least profitable (Midwest) regions. The South’s favorable performance was expected by finance leaders, as there was only slight variation to budget. It was driven by strong expense management during a period of stagnant volume growth. The Midwest’s unfavorable performance was driven by flat revenue, increases in Bad Debt and Charity Care, and increases in non-labor expense.
% Change
Absolute Change
% Change
Absolute Change
National Profitability Observations
For the first time in 2019, hospitals experienced a decline in profitability in June. While the decline is negligible compared to this time last year, Operating EBITDA Margins declined by 167 bps compared to last month, and Operating Margins declined 188 bps. This is the largest month-over-month decline since October 2018. Factors contributing to this decline include:
  • Volume: Year-over-year volume was relatively flat, but hospitals experienced volume reductions across the board compared to May 2019, with a more than 5 percent decline in Adjusted Discharges, Patient Days, and ED Visits. Most concerning is the 7 percent decline in Operating Room Minutes.
  • Revenues: While revenues were up 2.6 percent compared to this time last year, they were flat compared to May. Month-over-month Bad Debt and Charity Care increased by 6.7 percent.
  • Expenses: Expenses increased by more than 5 percent compared to last year, driven by increases in both labor and non-labor areas. Expenses were up 2 percent compared to last month, driven by declines in labor productivity and increases in supply expenses.
The primary concern with June’s performance is the industry’s inability to flex expenses commensurate with declining volume. A lack of flexibility is a fundamental risk to hospitals and health systems and something that industry disruptors are likely to use to their advantage in the coming months and years.
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
(4.1%)
(10.1%)
(1.6%)
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Operating Margin
(8.9%)
(26.1%)
(0.6%)
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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
(43.5)
(166.5)
(22.5)
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Operating Margin
(70.0)
(188.0)
(7.0)
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By Region
National Observations
By Bed Size
EBITDA Margin by Bed Size
For the third consecutive month, the nation’s largest hospitals (more than 500 beds) experienced gains in profitability. This performance was driven by increasing revenues, despite relatively little change in volume. Organizations with 0-25 beds and 200-299 beds also experienced profitability gains, driven by increases in revenue related to inpatient volume growth.
Conversely, for the third consecutive month, hospitals with 300-499 beds declined in profitability. These organizations had the largest declines in profitability of all bed-size cohorts, with Operating EBITDA Margins declining nearly 150 bps compared to last year. Primary drivers for this unfavorable performance include stagnant volume growth and expenses outpacing revenues.
For the first time in seven months, hospitals with 100-199 beds experienced declines in profitability. This cohort was unable to adapt to several unfavorable circumstances:
  • Stagnant inpatient volume, with Average Length of Stay increasing nearly 8 percent
  • More than a 6 percent decline in Operating Room Minutes
  • In contrast to the previous several months, expense growth at nearly three times the rate of revenues
% Change
Absolute Change
% Change
Absolute Change
By Region
National Observations
By Bed Size
©2019 Kaufman, Hall & Associates, LLC
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