Hospitals Require a Positive Margin to Serve Their Communities
For any organization, a positive operating margin is essential for long-term survival. Few organizations can maintain themselves for an extended period when total expenses are greater than total revenues.
For hospitals, positive financial margins allow them to invest in new facilities, treatments, and technologies to better care for patients, and to build reserves to meet unexpected expenses or revenue shortfalls.
Compared with other industries, healthcare margins typically have been very thin. Even before COVID-19, a number of U.S. hospitals struggled with negative margins—in other words, they were losing money on operations. In fact the median hospital margin was a very modest 3.5%.
This situation has been a serious threat to the future viability of many of America’s hospitals.
The Effect of COVID-19 on Hospital Margins
When the COVID-19 pandemic emerged, hospitals had to stop all but the most urgent non-COVID care. The result was a dramatic slowdown in volume of patients and in revenue, while expenses remained high. To date, no one knows when and to what degree these patients will return. The result has been an unprecedented impact and an uncertain future about the ability of hospitals to serve their communities and remain financially viable.
At the request of the American Hospital Association, Kaufman Hall presents our analysis of the critical question of how COVID-19 could affect hospital margins during 2020.
About Kaufman Hall
For more than 30 years, Kaufman Hall has been providing organizations in Healthcare, Higher Education, and Financial Institutions with independent, objective insight and financially-centered software tools that support decision making and enable the development and execution of sustainable strategies and goals.
Kaufman Hall currently provides consulting services and software to 80 of the 100 largest health systems in the United States.