Texas hospitals face rising expenses, squeezing profit margins as delta variant spreads
The burgeoning delta variant is taking a heavy toll on hospitals, particularly in Texas, where COVID-19-related hospitalizations are nearing last winter’s record high.
From June to July, operating profit margins fell 45% for hospitals in Texas, triple the decline for hospitals nationwide, according to Kaufman, Hall & Associates, a consulting firm that tracks data from more than 900 hospitals.
Texas’ weak performance exceeded a single month. From January to July, Texas hospital margins fell 16% from the same period in 2019, before the pandemic. Nationally, hospital margins fell 7%, or less than half.
And that’s ahead of the August and September results, when COVID hospitalizations statewide doubled from their July peak.
The declining profitability of Texas hospitals “is very different, and that’s quite worrying,” said Erik Swanson, senior vice president at the head of the Kaufman Hall data and analytics group. “And it doesn’t look like there is a very rapid slowdown in this trend.”
Hospitals typically have low operating margins, so even small declines can be significant, he said. These margin cuts exclude federal CARES assistance, which has been crucial in strengthening the finances of many providers.
Kaufman Hall reports the results with and without help, and Swanson said it’s important to get a feel for how basic operations work on their own: “It gives us a clearer view,” did he declare.
Texas hospitals also saw a 7.4% drop in profit margins before interest, taxes, depreciation and amortization – an important measure for funding future initiatives.
Hospital executives will be cautious in their investment decisions, said Stephen Love, CEO of the Dallas-Fort Worth Hospital Council, which represents the local industry.
“When they look at capital investments, they can ask if they can postpone it for three to six months,” he said. “And they might just do it. They’re really going to focus on keeping costs down until we get over that.
“I wouldn’t say it’s a dire situation, but I would say it’s a cautious situation,” Love said.
Hospital spending is on the rise, especially here. For the first seven months of 2021, they increased 11.5% in Texas compared to the same period in 2019. Nationally, total spending increased by 8%.
The Texas gap was even bigger on the job. In Texas, labor costs rose 15.2% from 2019 while they rose 9.3% nationally.
Much of this can be attributed to the spread of the delta variant. Texas is once again a COVID hotspot, and treating COVID patients is costly because they need additional supplies, drugs, and specialists, including respiratory therapists and intensive care physicians.
The shortage of health workers has drastically increased salaries and some are resigning to work as itinerant workers.
COVID patients often need several days of treatment, and the average hospital stay in Texas has increased 5.3% from 2019. This generates more revenue, and hospitals in Texas have seen an increase of 7 , 1% of their gross income in the first seven months.
But COVID has pushed up spending even more, in part because hospitals are treating sicker patients who need more help.
There is another financial blow linked to COVID: More and more people are postponing their plans for surgery and other treatments.
In rare cases, a hospital will suspend non-essential surgeries because it must dedicate staff to COVID patients. Most often, the announcement of the increase in cases is enough to discourage some from going to their providers.
“A lot of it is really based on the behavior of the patient,” Swanson said. “They make their own decisions about health and safety, and when to resume that care. “
Patients often receive routine outpatient treatment, which is generally more cost-effective. In July, incomes for ambulatory patients in Texas hospitals fell 2.1%, and Swanson said that was often a leading indicator of where the trend is heading.
In the past seven months, Texas hospital outpatient revenues increased 3.6% from 2019. But hospitals nationwide saw a 10% increase. The mix of activities – skewed towards more revenue for inpatients – contributes to the decline in profitability here.
Another measure, operating room minutes, also reflects attitudes towards seeking care. In Texas hospitals, operating minutes fell 3.5% for the first seven months of 21 while they increased slightly nationally.
“It may indicate the same consumer behavior,” Swanson said. “The public reacts to what they see.
In the service area that includes North Texas, more than 50% of patients in intensive care units are being treated for COVID – near the peak a few weeks ago, Love said of the hospital board. The number of COVID hospitalizations here was higher in January, but more patients today need intensive care.
“We have sicker patients, younger patients, and patients, frankly, who need a lot more treatment and staff,” Love said.
The increase in COVID cases is also threatening the wider economic recovery. In August, the United States created just 235,000 non-farm jobs, down sharply from the 1.05 million jobs created in July and the 962,000 jobs added in June.
Blame it on the outbreak of the delta variant, which largely infects the unvaccinated.
“It really hurt the economy,” said Vivian Ho, a health economist at Rice University.
Several business conferences she had planned to attend, including in Washington next month, have again been converted to virtual events. She is frustrated that so much pandemic attention is being focused on those who don’t want to be vaccinated or who want to party side by side as if the crisis is over.
“They are forgetting the group that is very scared of COVID,” said Ho, who she says is one of the main reasons for the financial squeeze on Texas hospitals.
“My husband and I are conservative in terms of what we’re willing to do, but there are a lot of others who are more scared than us,” Ho said. “They will withhold any kind of purchase or service. unless it is absolutely necessary. “