Hospitals closed out a tumultuous 2020 with COVID-19 cases rising and a more contagious variant of the virus spreading. 2020 hospital revenues — even with CARES funding — finished the year below 2019 revenues and expenses increased by 14%.
Here are the 2020 top financial KPIs for U.S. hospitals and health systems:
#1 – Operating Margins down
Without CARES funding, Operating Margin was down 4.9%, a 55.6% decrease since the beginning of 2020. With CARES, Operating Margin dropped 1.2% for the year.
#2 – Utilization lower across the board
Emergency Department Visits were down 16.2%, while Operating Room Minutes declined 10.5%. Adjusted Discharges were down 10%.
#3 – Overall revenue declines
Gross Inpatient Revenue was essentially unchanged from 2019, likely attributable to fewer patients but higher acuity patients. However, Gross Outpatient Revenue declined 6% as patients avoided preventive screenings and routine care.
#4 – Expenses increase
Total Expenses per Adjusted Discharge increased 14.4% year over year as fewer patients require additional staff and supplies, such as personal protective equipment.
#5 – Bad debt, charity care fall
Bad Debt and Charity as a Percent of Gross Revenue fell 5.9% in 2020, mirroring an overall decline in demand for care.
Spotlight: 2020 in review
The COVID-19 turmoil will not abate over the next few months, even as mass vaccinations begin. Infections are rising after the holidays, with more people indoors during the winter and a more virulent strain of the virus circulating nationwide.
CARES funding was a life-saver for healthcare facilities in 2020, though it didn’t entirely close Operating Margin gaps. To avoid taking further financial hits, hospitals must better understand their costing structures and attribute expenses to the right patients. Labor and supply costs were higher for the year, with Total Expense per Adjusted Discharge up 14.4% for the year.
Turning data into action with rolling forecasts
The sudden onslaught of COVID-19 caught most hospitals and health systems off guard, rendered annual budgets meaningless overnight, and left many hospitals without a financial plan they felt comfortable following. Organizations that use a rolling forecast as a replacement or a supplement to annual budgeting fared better than organizations that didn’t in understanding their financial position at a granular level because they could adjust forecasts based on updated information.
A rolling forecast is completed monthly or quarterly, creating a more accurate view of future financial results based on to-date performance. As revenue from outpatient procedures and ED visits plummeted while personnel and supply expenses skyrocketed this spring, organizations with rolling forecasts could quickly update information based on current conditions to recreate budgets. Rolling forecasting brings decision-making closer to real-world conditions.