Hospital margins hit hard by pandemic, but CARES Act provided huge relief, Moody’s finds

By | March 29, 2021

Dive Brief:

  • A new report from Moody’s Investors Service concluded that non-profit and public hospital margins have declined but liquidity has improved during the COVID-19 pandemic, primarily due to advanced Medicare payments under the relief provisions of the Coronavirus Aid, Relief, and Economic Security Act. However, overall cash flow slumped.
  • The acuity of inpatients also increased as a result of the reduction in elective procedures in order to preserve beds for coronavirus patients. And hospitals are still battling rising expenses in relation to the pandemic, which they have reacted to by trying to cut costs.
  • The proportion of hospitals that suffered operating losses rose significantly, although the overall sample was significantly smaller. Although the fiscal situation for the sector has improved, Moody’s did not provide a long-term outlook for hospitals in 2021 and beyond.

Dive Insight:

Hospitals have been hit hard by the COVID-19 pandemic that is now into its second year, causing key indicators such as ER volume to plummet. However, the financial relief offered by the federal government has softened the worst of the blows.

According to the Moody’s report, the median operating margin for the sector was 0.5% in 2020. That compares to a 2.4% margin in 2019. The operating cash flow margin averaged 6.7% last year, down from 8.4% in 2019. Much of that decline was due to hospitals having canceled a large number of elective procedures during the pandemic’s height in the spring and summer of last year.

However, money from the CARES Act that went to hospitals made the rough period much more bearable. Moody’s concluded that CARES Act funding — both advanced Medicare payments and other cash infusions — contributed anywhere from 14% to 100% of operating cash flow. Median days of cash on hand rose from about 200 days in 2019 to around 250 days last year with the help of CARES money.

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Nevertheless, hospitals still had to deal with other fiscal pressures. Expenses rose a median of 4.7% last year, which was made worse by the fact that revenue rose just 3%, only half of the 5.9% growth posted in 2019.

As a result, 42% of the 130 hospitals and hospital systems surveyed posted an operational loss last year, up from the 23% that posted such losses in 2019. However, the 2019 survey included 282 hospitals and hospital systems.

The findings jibe with another report this week from the HHS Office of the Inspector General. It found that in addition to the financial pressures, hospitals’ staff were suffering from trauma, exhaustion and burnout.

Although the recently enacted American Rescue Plan contains little funding for hospitals, its significant financial bolstering of the Affordable Care Act is expected to increase the number of insured and improve their bottom line, according to a new report by Fitch Ratings.

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