A study of 2,163 US hospitals shows that, despite substantially reduced operating margins in 2020, their overall profit margins remained similar to those before the COVID-19 pandemic, and government, rural, and smaller hospitals performed even better than in previous years.
In the study, published today in JAMA Health Forum, Johns Hopkins University researchers assessed the financial health of 1,378 hospitals with fiscal years starting in January and 785 that begin their fiscal year in July from 2016 through 2020. Nearly 40% of Medicare-certified general acute care hospitals start their fiscal year in January, the authors said. The team analyzed RAND Hospital Data, a compiled and processed version of Medicare Cost Reports, on Mar 12, 2022.
The researchers noted that, as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act, Congress gave $175 billion in subsidies to help healthcare facilities and clinicians stay afloat amid the need to cancel elective surgeries and restructure facilities to treat COVID-19 patients. Government, rural, and smaller hospitals received targeted funds. The hospitals classified the relief funds as other nonoperating income.
COVID relief funds offset losses
Of the 1,378 hospitals with fiscal years starting in January, average operating margins decreased from –1.0% (95% confidence interval [CI],–1.9% to –0.1%) in 2019 to –7.4% (95% CI, –8.5% to –6.3%) in 2020. Operating margins consist of net income from patient services divided by patient revenue, minus contractual allowances.
The average proportion of nonoperating income grew from 4.4% (95% CI, 4% to 4.7%) in 2019 to 10.3% (95% CI, 9.9% to 10.8%) in 2020. Average profits in 2020 (6.7%; 95% CI, 5.4% to 8.1%) remained stable from previous years. Government, rural, and smaller hospitals had higher average profit margins in 2020 than in 2019 (7.2% vs 3.7%, 7.5% vs 1.9%, and 6.7% vs 3.5%, respectively), and the results remained consistent when assessing hospitals with fiscal years starting in July.
While average operating margins decreased, the average overall profit margin remained stable in 2020 for all hospital ownership types, geographic locations, and size categories.
In particular, government, rural, and smaller hospitals showed higher average overall profit margins in 2020 than in 2019:
- 2019:7%, 1.9%, and 3.5%, respectively
- 2020:2%, 7.5%, and 6.7%, respectively
The interactions between ownership type and geographic location followed the same pattern.
Hospitals with fiscal years beginning in July had already begun receiving relief funds in the last 4 months of their 2019 fiscal year (ie, March-June), unlike hospitals that start their fiscal year in January.
These hospitals saw a substantial decline in operating margins in 2019 (average, –9.5%; 95% CI, –10.9% to –8.1%) and 2020 (average, –6.1%; 95% CI, –7.6% to –4.6% ). But because they received COVID-19 subsidies in 2019 and 2020, their overall profit margin remained stable in 2019 (average, 4.2%; 95% CI, 3.3% to 5.0%) and rose substantially in 2020 (average, 11.1%; 95% CI, 10.1% to 12.0%).
“The study results suggest that the COVID-19 relief fund effectively offset the operational financial losses of hospitals during the COVID-19 era, particularly for government, rural, and smaller hospitals, which are typically more financially vulnerable and have been supported by some targeted fund allocation,” the authors wrote.