Kaufman Hall: CARES Act Money Pushes Hospital Margins Into the Black

Hospitals have bounced back from April but are still behind from where they were in May 2019.

The infusion of $50 billion of Coronavirus Aid, Relief and Economic Security (CARES) Act funds into hospital budgets pushed operating margins back into the black in May, according to Kaufman Hall’s monthly “National Hospital Flash Report.”

The report, which is based on budget data from a representative sample of 800 U.S. hospitals, shows the median operating margin was 4% in May with CARES fund. Without the CARES money, it would be -8%, according to Kaufman Hall’s calculations.

Similarly, the median operating EBITDA (earnings before interest, taxes, depreciation and amortization) margin rose to 10% when CARES funding was included. Without it, the EBITDA margin would have -2%, according to Kaufman Hall.

According to the report, the vast majority of hospitals that received CARES money recorded the entire amount in their books in April and May rather than spreading the money out over the year.

Almost all the data in the report — you can see the full text here — paint a two-frame picture. Frame 1: Recovery in May from the unprecedented drop of healthcare utilization in March and April, which was coupled with level or increased expenses related to COVID-19. Frame 2: A decrease from the levels that hospitals were in May 2019.

For example, operating room minutes almost doubled (a 92% increase) in May compared to April but they were down 29% compared to May 2019. Another example: Total gross revenue was down 14% compared to May 2019 but increased 29% compared with April.

“Despite the month-over-month gains, however, hospital margins and volumes remained well below 2019 performance and budget expectations,” says the report’s introduction by Jim Blake, Kaufman Hall managing director. “Even though the year-over-year declines were far less than those seen in April, they convey the continued fragile state of our nation’s hospitals.”

Related: Covid-19 Hit

On the expense, Kaufman Hall says its data show the effects of hospitals moving to control expenses with furloughs and by other means. The report says total expenses decreased by 6% compared to May 2019 but inched up 1% from April.

The report identifies some regional and hospital size differences. Hospitals in the West (Montana, Wyoming, Colorado, New Mexico, Arizona, Utah, Nevada, Idaho, Washington, Oregon and California) had the greatest declines in operating EBITDA margin compared with last May. By size, hospitals with 100-199 beds had the steepest decline in operating EBITDA compared to 2019.