September 23, 2021

Hospitals are projected to lose $54B by the end of the year, according to a new report

Daily Briefing

Hospitals in the United States are projected to lose billions in net income by the end of the year, according to a new report released by the American Hospital Association (AHA)—and their financial struggles may worsen as Covid-19 cases and hospitalizations continue to surge.

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Hospitals projected to lose billions this year

AHA on Tuesday released a report by Kaufman, Hall & Associates that projected U.S. hospitals will lose an estimated $54 billion in net income this year, even after accounting for Coronavirus Aid, Relief, and Economic Security (CARES) Act funding from last year. The projections were developed using performance data—including total volume, total revenue, and total expense—from 900 hospitals.

According to the report, three factors contributed to this projected loss in net income:

  1. Sicker patients. Overall, hospitals have seen more high-acuity, inpatient cases—both for Covid-19 and care that was deferred during the pandemic—that require longer lengths of stays. While these cases can increase revenue, any gains are offset by higher costs of care needed to treat patients with severe conditions.
  2. Higher expenses. Hospital expenses have increased across the board due to increasing costs of drugs, purchased services, personal protective equipment, and other necessary medical and safety supplies for higher-acuity patients. In addition, hospitals have faced increasing labor costs, including hiring travel nurses to offset staffing shortages.
  3. Fewer outpatient visits. Hospital outpatient visits, which typically have lower expenses and higher margins, are growing. However, they are still lower than normal after plummeting last year amid nationwide shutdowns, delayed surgeries, and other Covid-19 safety restrictions.

Due to the increased costs of care for sicker patients and fewer outpatient visits, median hospital margins are expected to be 11% lower than pre-pandemic margins by the end of the year. This reduction in hospital margins will hinder hospitals' ability to invest in additional community services or growth through the rest of the year, the report said.

In addition, more than a third of hospitals in the United States are expected to end the year with negative margins—a significant increase from 25% of hospitals with negative margins in 2019.  

Finally, the report found that without federal relief funds through the CARES Act, losses in net income for hospitals could be as high as $92 billion—emphasizing the magnitude of losses that hospitals will likely continue to face going forward.

Financial strain may be worse than projected

According to the report, hospitals are unlikely to recover financially by the end of the year as the Covid-19 pandemic continues to create both clinical and financial challenges for many organizations.

Furthermore, the projections in the report were made using data from the first and second quarters of the year, before the latest surge in Covid-19 cases and hospitalizations. Because of this, hospitals may face further financial strain due to the "uncertain trajectory" of the delta and mu variants in the fall, HealthLeaders Media reports.

In recent months, hospitals have struggled as the delta variant has led to a sharp increase in cases and hospitalizations around the country. According to CDC data, the seven-day moving average of new Covid-19 cases increased from 11,634 on June 19 to 146,182 on Sept. 15—more than a tenfold increase. In addition, the seven-day moving average of new Covid-19 hospitalizations increased 488%, from 1,900 on June 19 to 11,168 on Sept. 14.

According to Rick Pollack, AHA President and CEO, hospitals and health systems in the United States "continue to face significant, ongoing instability and strain as the Covid-19 pandemic endures and spreads."

"With cases and hospitalizations at elevated levels again due to the rapid spread of the delta variant, physicians, nurses, and other hospital caregivers and personnel are working tirelessly to care for Covid-19 patients and all others who need care," he said. "At the same time, hospitals are experiencing profound headwinds that will continue throughout the rest of 2021." (Davis, HealthLeaders Media, 9/21; Kaufman, Hall & Associates/AHA report, 9/21; American Hospital Association, 9/21; Fiore, MedPage Today, 9/21; Paavola, Becker's Hospital Review, 9/21)

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