Category Archives: Average Length of Stay (ALOS)

The Numbers Behind the Numbers

Posted on by • Posted in Average Length of Stay (ALOS), Contract Labor, Health System, Hospital, Hospital Industry, Key Performance Indicators, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Outpatient Care, Outpatient Migration, Outpatient Revenue • Leave a comment

https://www.kaufmanhall.com/insights/thoughts-ken-kaufman/numbers-behind-national-hospital-flash-report

U.S. Hospital YTD Operating Margin Index November 2021-December 2023

The observations and questions from this chart are both interesting and required reading for hospital executives:

  • Why were hospitals profitable at the 4% plus level through the worst of the 2021 Covid period?
  • What exactly happened between December of 2021 and January of 2022 that resulted in a profitability decrease from a positive 4.2% to a negative 3.4%?
  • Despite the best efforts of hospital executives, overall operating margins were negative throughout calendar year 2022 and did not return to positive territory until March of 2023.
  • Hospital margins remained positive throughout 2023 and into 2024. However, overall margins have remained below those experienced in both 2021 and in the pre-Covid year of 2019.

The above questions and observations have proven interesting, and the ongoing numbers have proven quite useful in many quarters of healthcare. But recently I was talking with Erik Swanson, who is the leader of the Kaufman Hall Flash Report and our executive behind the data, numbers, and statistics. Erik and I were speculating about all of the above observations, but our key speculation was whether the 2023 operating margin results actually reflected a hospital financial turnaround or, in fact, were there “numbers behind the numbers” that told a different and much more nuanced story. So Erik and I asked different questions and took a much deeper dive into the Flash Report numbers. The results of that dive were quite telling:

  1. Too many hospitals are still losing money. Despite the fact that the Operating Margin Index median for 2023 and into 2024 was over 2%, when you look harder at the Flash Report data, you find that 40% of American hospitals continue to lose money from operations into 2024.
  2. There is a group of hospitals that have substantially recovered financially. Interestingly, the data shows over time that the high-performing hospitals in the country are doing better and better. They are effectively pulling away from the pack.
  3. This leads to the key question: Why are high-performing hospitals doing better? It turns out that several key strategic and managerial moves are responsible for high-performing hospitals’ better and growing operating profitability:
    • Outpatient revenue. Hospitals with higher and accelerating outpatient revenue were, in general, more profitable.
    • Contract labor. Hospitals that have lowered their percentage of contract labor most quickly are now showing better operating profitability.
    • An important managerial fact. The Flash Report found that hospitals with aggressive reductions in contract labor were also correlated to rising wage rates for full-time employees. In other words, rising wage rates have appeared to attract and retain full-time staff which, in turn, has allowed those hospitals to reduce contract labor more quickly, all of which has led to higher profitability.
    • Average length of stay. No surprise here. A lower average length of stay is correlated to improved profitability. Those hospitals that have hyper-focused on patient throughput, which has led to appropriate and prompt patient discharge, have also proven this to be a positive financial strategy.
  4. Lower financial performers have financially stagnated throughout the pandemic. The data shows that throughout the pandemic, hospitals with good financial results improved those results, but of more consequence, hospitals with poor financial performance saw that performance worsen. The Flash Report documents that the poorest financially performing hospitals currently show negative operating margins ranging from negative 4% to negative 19%. Continuation of this level of financial performance is not only unstainable but also makes crucial re-investment in community healthcare impossible.
  5. The urban hospital/rural hospital myth. A popular and often quoted hospital comparison is that there is an observable financial divide between urban and rural hospitals. Erik Swanson and I found that recent data does not support this common perception. When you compare “all rurals” to “all urbans” on the basis of average operating margin, no statistically significant difference emerges. However, what does emerge—and is a very important statistical observation—is that the lowest performing 20% of rural hospitals are, in fact, generating much lower margins then their urban counterparts this year. It is at this lowest level of rural hospital performance where the real damage is being done. 
  6. Rural hospitals and obstetrics. The data does confirm one very important American healthcare issue: Obstetrics and delivery services are one of the leading money losers of all hospital service offerings. And the data further confirms that rural hospitals are closing obstetric departments with more frequency in order to protect the financial viability of the overall rural hospital enterprise. This is a health policy issue of major and growing consequence.

The point here is that data, numbers, and statistics matter both to setting long-term social health policy agendas and to the strategic management of complex provider organizations. But the other point is that the quality and depth of the analysis is an equally important part of the process. A first glance at the numbers may suggest one set of outcomes. However, a deeper, more careful and penetrating analysis may reveal critical quantitative conclusions that are much more telling and sophisticated and can accurately guide first-class organizational decision-making. Hopefully the analytics here are a good example of this very point.

Do insurers have a disincentive to help with transitions of care? 

Posted on by • Posted in Average Length of Stay (ALOS), Care Transition, Case Rates, Denial, Denial Rates, Health Insurance Industry, Health System, Hospital, Hospital Industry, Medicare Advantage, Medicare Denials, Post Acute Care, Post Acute Networks • Leave a comment

https://mailchi.mp/b7baaa789e52/the-weekly-gist-september-29-2023?e=d1e747d2d8

A number of health systems have recently noted increasing financial challenges for Medicare Advantage (MA) patient admissions. 

One CFO shared, “our rates from MA plans are roughly on par with fee-for-service Medicare. Denials have always been a problem, making our [revenue] capture about 90 percent. But this year it’s dropped to 80 percent…it’s a crisis for us, given fast how MA volumes are growing.”

His team investigated the change and found the cause: mean length of stay for MA patients has jumped sharply. The rise was almost entirely due to difficulties in discharging patients to rehab and skilled nursing facilities. 

Key insurers have narrowed their postacute networks, resulting in patients spending days waiting for a bed. “The payers told us they had focused the network on ‘high-performing’ providers. Our data and doctors’ experiences say otherwise. They chose a handful of facilities that are cheap, with questionable quality,” their CMO reported. Attempts to engage payers to solve the problem have gone nowhere:

“They have a disincentive to work with us on this. With case rates, they are saving money if patients are languishing in an expensive hospital bed rather than going to rehab.”

This system is exploring expedited placement and expanding their portfolio of home-based care and postacute offerings, while even considering guaranteeing payment themselves. If you’re having similar challenges or have found solutions to help with transitions of care, we’d love to hear from you and learn more. 

The dire state of hospital finances (Part 1: Hospital of the Future series)

Posted on by • Posted in Administrative Footprint, Average Length of Stay (ALOS), Business Model, Business Transformations, Clinical Management of Complex Patients, Cohesive Care Teams, Competition, Cost Management, Cost Reduction, Deferred Healthcare, Disruption, Elective Procedures, Elective Surgery, Employee Layoffs, Employee Loyalty, Employee Staffing, Employee Staffing Shortage, Experience Complexity Gap, External Market Forces, Financial Instability, Financial Pressure, Financial Stewardship, Financial Strength, Financial Viability, Financially Distressed, Health System, High Deductible Health Plans, Home-Based Care, Hospital, Hospital Industry, Inflation, Innovation, Labor Cost Structure, Labor Market, Labor Shortages, Labor Spend Management, Leadership, Mission, Nonoperating Income, Nonoperating Income Dependency, Nurse Agency Staffing, Nurse Retention, Nurse Staffing, Operating Expense Reduction, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Operating Revenue, Outpatient Care, Outpatient Surgery, Patient Demand, Patient Safety, Payor Contracting, Payor Mix, Post Acute Care, Quality of Care, Rationalization, Recession, Reorganization, Retention, State of the Union, Strategy, Strategy Sustainable Long Term, Streamlining Operations, Supply Chain, Talent Acquisition Strategy, Talent Competition, Talent Management, Turnover, Turnover Rates, Work Life Balance, Work-Life Balance, Workforce Challenges, Workforce Strategy • Leave a comment
https://radioadvisory.advisory.com/142?utm_source=member_db&utm_medium=email&utm_campaign=2022Dec22&utm_content=member_trendingnow_final_x_x_x_x&elq_cid=4838956&x_id=0033b00002owB9sAAE

About this Episode

The majority of hospitals are predicted to have negative margins in 2022, marking the worst year financially for hospitals since the beginning of the Covid-19 pandemic.

In Part 1 of Radio Advisory’s Hospital of the Future series, host Rachel (Rae) Woods invites Advisory Board experts Monica Westhead, Colin Gelbaugh, and Aaron Mauck to discuss why factors like workforce shortages, post-acute financial instability, and growing competition are contributing to this troubling financial landscape and how hospitals are tackling these problems.

Links:

As we emerge from the global pandemic, health care is restructuring. What decisions should you be making, and what do you need to know to make them? Explore the state of the health care industry and its outlook for next year by visiting advisory.com/HealthCare2023.

COVID-19 impact on hospitals worse than previously estimated

Posted on by • Posted in 2020 Election Issues, Average Length of Stay (ALOS), Cash, Cash Reserves, Clinical Testing, Contact Tracing, Coronavirus, Crisis, Crisis Management, EBITDA, Economic Crisis, Economic Stimulus, Emergency Preparedness, Employee Furlough, Employee Hiring Freeze, Employee Layoffs, Employee Pay Cuts, Employee Protections, Health Policy, Health System, Hospital, Hospital Industry, Infection Control, Infection Control Plan, Infectious Virus, Intensive Care (ICU), Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Personal Protective Equipment (PPE), Social Distancing, Supply Chain, The CARES Act, Ventilators • Leave a comment

https://www.healthcarefinancenews.com/news/covid-19-impact-hospitals-worse-previously-estimated?mkt_tok=eyJpIjoiWTJOaU5EWTJOekZsWWpBMCIsInQiOiJEeUZmbVFWVEFmUUxiMElydWdrMmNzY2RtNEdMbmRmM3BFMUFiYTRDOTFBYktPVVJ3ZUFTbTVwR2VzZkNma2VLdUVTNWJ0cGxMNGZ3UjhHbWhDR3g2KzNLeTYrbHU1bCtOWFM1bzdIdXFyQmc2ZGFDNDA4NGNhbFZZT3R2c09wYSJ9

Coronavirus | MSF

Factors such as how many patients would need ICU treatment, average length of stay and fatality risk are straining hospital resources.

When it became evident that the COVID-19 pandemic would spread across the U.S., lawmakers, scientists and healthcare leaders sought to predict what the financial and operational impact on hospitals would be. In those early days, policymakers relied on data from China, where the pandemic originated.

Now, with the benefit of time, the early predictions seriously underestimated the coronavirus’ impacts. University of California Berkeley and Kaiser Permanente researchers have determined that certain factors — such as how many patients would need treatment in intensive care units, average length of stay and fatality risk — are much worse than previously anticipated, and put a much greater strain on hospital resources.

WHAT’S THE IMPACT

Looking primarily at California and Washington, data showed the incidents of COVID-19-related hospital ICU admissions totaled between 15.6 and 23.3 patients per 100,000 in northern and southern California, respectively, and 14.7 per 100,000 in Washington. This incidence increased with age, hitting 74 per 100,000 people in northern California, 90.4 per 100,000 in southern California, and 46.7 per 100,000 in Washington for those ages 80 and older. These numbers peaked in late March and early April.

Those numbers are greater than the initial forecast, especially when factoring in the virus itself. Modeling estimates based on Chinese data suggested that about 30% of coronavirus patients would require ICU care, but in the U.S., the probability of ICU admissions was 40.7%. Male patients are more likely to be admitted to the ICU than females, and also are more likely to die.

Length of stay was also higher than had been predicted. By April 9, the median length of stay was 9.3 days for survivors and 12.7 days for non-survivors. Among patients receiving intensive care, the median stay was 10.5 days, although some patients stayed in the ICU for roughly a month.

Long durations of hospital stay, in particular among non-survivors, indicates the potential for substantial healthcare burden associated with the management of patients with severe COVID-19 — including the need for ventilators, personal protective equipment including N95 masks, more ICU beds and the cancellation of elective surgeries.

The considerable length of stay among COVID patients suggests that unmitigated transmission of the virus could threaten hospital capacity as it has in hotspots such as New York and Italy. Social distancing measures have acted as a stop-gap in reducing transmission and protecting health systems, but the authors said hospitals would do well to ensure capacity in the coming months in a manner that’s responsive to changes in social distancing measures.

THE LARGER TREND

These challenges have placed a financial burden on hospitals that can’t be overstated. In fact, a Kaufman Hall report looking at April hospital financial performance showed that steep volume and revenue declines drove margin performance so low that it broke records.

Despite $50 billion in funding allocated through the CARES Act, operating EBITDA margins fell to -19%. They fell 174%, or 2,791 basis points, compared to the same period last year, and 118% compared to March. This shows a steady and dramatic decline, as EBITDA margins were as high as 6.5% in April.