October 2019
Profitability
EBITDA Margin by Region *
Most areas of the country increased profitability year over year. The West was one exception. The region had the lowest performance, with Operating EBITDA Margin down -15.6 percent or -181.8 bps year over year. While hospitals in the West experienced volume increases similar to other areas of the country, they were not able to manage expenses as well as other geographies, particularly in labor and pharmaceuticals. Bad Debt and Charity Care as a Percent of Gross also increased more in the West than other areas of the country.
The Great Plains saw the most significant increases for the month. Operating EBITDA Margin rose 47.7 percent or 513.2 bps year over year. This area of the country experienced the greatest increases in inpatient activity, with Discharges increasing nearly 7 percent compared to the same period last year. Meanwhile, the South saw Operating EBITDA Margin remain essentially flat, up just 1.99 percent or 34 bps year over year.
Continued stable performance in the Midwest is noteworthy because this region seems better equipped at managing expenses than other areas, which allows hospitals there to more effectively control operating margins.
% Change
Absolute Change
National Profitability Observations
September 2019 was a month of mixed performance for U.S. hospitals. Profitability improved healthily compared to the same period in 2018, with Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin increasing 13.5 percent or 148.6 basis points (bps), and Operating Margin increasing 16.9 percent or 129.0 bps. These improvements are driven by across-the-board volume increases—inpatient, outpatient, emergency department, and operating room volumes all increased by more than 2.5 percent. This resulted in year-over-year revenue growth of 4.5 percent, and strong productivity performance with Full-Time Equivalents per Adjusted Occupied Bed declining -2.6 percent.
While this volume-driven, fee-for-service profitability growth is encouraging, there can be negative consequences if the trend reverses. This was the case in month-over-month performance in September. Inpatient, outpatient, and operating room volumes all declined by -3.5 percent or more compared to last month, and emergency room volume was flat. This led to expenses increasing faster than revenue. As a result, Operating EBITDA Margin declined -2.2 percent (-41.4 bps) and Operating Margin declined -5.2 percent (-64.1 bps). This is the second consecutive month—and the third month in 2019—to see month-over-month declines in hospital profitability.
Both year-over-year and month-over-month profitability variances for the month once again indicate that volume is a primary driver of performance.
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
(1.8%)
(2.2%)
13.5%
Operating_EBITDA_Margin.svg
Operating Margin
0.5%
(5.2%)
16.9%
Operating_Margin.svg
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
(18.7)
(41.4)
148.6
Operating_EBITDA_Margin_Abs.svg
Operating Margin
5.5
(64.1)
129.0
Operating_Margin_Abs.svg
EBITDA Margin by Bed Size
The nation’s smallest hospitals, those with 0-25 beds, bounced back from last month’s soft performance and led the nation in year-over-year profitability gains. Operating EBITDA Margin improved 48.2 percent or 423.2 bps. These small, but oftentimes critical institutions experienced strong volume improvements, with revenues outpacing expenses.
In a trend observed in previous months, the nation’s largest hospitals, those with more than 500 beds, experienced the greatest profitability declines. It was the only bed-size cohort to see unfavorable year-over-year performance in September. This is the third consecutive month these large institutions experienced flat or declining profitability. Operating EBITDA Margin declined -6.6 percent (-59.9 bps) compared to the same period last year.
% Change
Absolute Change
©2019 Kaufman, Hall & Associates, LLC
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