September 2019
Profitability
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EBITDA Margin by Region *
Profitability declined year over year in all geographic regions in August. Most notable were continued trends in the Midwest and Northeast. While the strong profitability trends in the Midwest subsided in August, this area of the country continues to be more resilient and experienced the smallest declines in Operating EBITDA Margin at just over -5 percent. This a result of Midwest hospitals controlling expenses more effectively during periods of stagnating volume.
Conversely, hospitals in the Northeast/Mid-Atlantic had the greatest declines in profitability with a -15.8 percent drop compared to this time last year. This performance is a continuation of an unfavorable profitability trend in this area of the country, and is largely driven by both declining revenues and increased expenses.
Operating EBITDA Margin in most regions also was below budget for the month. The Great Plains was the outlier, where profitability was about 16.7 percent or 198 bps above budget in August.
% Change
Absolute Change
% Change
Absolute Change
National Profitability Observations
The nation’s hospitals experienced profitability declines in August, marking just the second month to see declines so far in 2019. Operating Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) Margin declined -9.4 percent or 139 basis points (bps), and Operating Margin declined -11.4 percent or 122.5 bps compared to this time last year.
The declines were nearly universal—affecting all geographic regions and bed sizes—and were primarily driven by softening volumes. Inpatient Discharges, Emergency Department Visits, and Operating Room volumes all declined more than -1.5 percent year over year. Additionally, Bad Debt and Charity Care was up more than 5 percent versus August 2018. This resulted in expenses rising faster than revenues.
As was the case in June and as predicted in the previous month’s National Hospital Flash Report, hospitals seem unable to effectively adjust expenses when volumes flatten in order to maintain sufficient profitability. While the first eight months of 2019 have generally been favorable for the nation’s hospitals, it is unclear what the fall and winter months have in store. Regardless, it is clear that volume and profitability are inextricably linked, and organizations that can better predict volumes and react to changes will have a competitive advantage in an increasingly disrupted healthcare industry.
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
(2.9%)
(2.5%)
(9.4%)
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Operating Margin
(2.6%)
(4.0%)
(11.4%)
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
(44.0)
(50.0)
(139.0)
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Operating Margin
(27.0)
(54.0)
(122.5)
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By Region
National Observations
By Bed Size
EBITDA Margin by Bed Size
In a reversal from July’s performance, hospitals of all bed sizes experienced declines in profitability in August. Profitability declined the most at hospitals with 0-25 beds and 200-299 beds, with Operating EBITDA Margin falling more than -15 percent year over year. Hospitals with 300-499 beds saw the least declines of just -2.5 percent.
For the second consecutive month, the nation’s largest hospitals, those with more than 500 beds, experienced either stagnating or declining profitability. Despite having relatively stable inpatient volumes, these organizations had fewer outpatient visits, and lower emergency and operating room volumes. Furthermore, these large hospitals had nearly a 7 percent increase in labor expense and a 10 percent increase in purchased service expense compared to August 2018.
% Change
Absolute Change
% Change
Absolute Change
By Region
National Observations
By Bed Size
©2019 Kaufman, Hall & Associates, LLC
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