During 2021, COVID-19 will continue to depress hospital margins and ability to serve their communities
A positive operating margin—that is, more revenue than expenses—is critical for any organization to survive over the long term, including not-for-profit organizations. For America’s hospitals, positive margins create the ability to invest in new facilities, treatments, and technologies to better care for patients, and to build reserves to be ready for a future made highly uncertain due to the effects of the COVID-19 pandemic.
In our February 2021 report, Kaufman Hall research showed that 2021 hospital revenue would likely be down between $53B and $122B due to the lingering effects of COVID-19. In this report, we examine the potential effect of COVID-19 on hospital operating margins over the course of 2021, including the following:
- Margins for U.S. hospitals as a whole
- The percentage of hospitals with negative margins
- Margins for America’s rural hospitals
The report shows the effects of COVID-19 in two scenarios—one more optimistic, and one more pessimistic. The two scenarios take into account these factors:
- Recovery of hospital volumes: The degree and pace at which inpatient, outpatient, and emergency department volumes return
- COVID-19 vaccine progress: The availability of vaccines, the speed of distribution, and the prioritization of different populations for vaccination
- Decline in COVID-19 cases: The degree and pace at which COVID-19 cases decline, based on public use of social distancing and achievement of herd immunity
Actual hospital data available so far in 2021 pertaining to inpatient revenue and adjusted inpatient days tends to support the more pessimistic scenario.
However, in either optimistic or pessimistic scenarios, margins of America’s hospitals will remain depressed throughout 2021, the percentage of hospitals with negative margins will likely increase, and the financial health of rural hospitals will be significantly affected.
This report was prepared at the request of the American Hospital Association.