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The Keckley Report

Hospital Finances in 2021: What we Know for Sure

By September 27, 2021March 1st, 2023No Comments

Last week, Kaufman, Hall and Associates released its outlook for hospital finances for the rest of 2021. Highlights of its analysis include:

  • Hospitals will lose about $54 billion in net income over the course of the year, even after considering federal Coronavirus Aid, Relief, and Economic Security (CARES) Act funding from last year.

  • Hospital expenses compared to pre-pandemic levels have increased significantly in 2021: Drug Expenses per Adjusted Discharge +24%, Total Expenses per Adjusted Discharge +15%, Non-labor Expenses per Adjusted Discharge + 17% and Labor Expenses per Adjusted Discharge +14%. FTEs per Adjusted Occupied Bed (AOB) decreased 4% year to date—the only decline.

  • “Higher costs of caring for sicker patients and fewer outpatient visits than pre-pandemic levels could lead median hospital margins to be 11% below pre-pandemic levels by year’s end. More than one-third of hospitals are expected to end 2021 with negative margins.”

  • And from KF’s August flash report: “The median Kaufman Hall Operating Margin Index was 3.1% in August without CARES funding, and 3.9% with the aid. The median change in Operating Margin was down 2.9% year-to-date versus pre-pandemic levels in the first eight months of 2019, not including CARES. With CARES, the median change in Operating Margin rose 11.2% versus January-August 2019.

In response, the American Hospital Association issued a statement: “If there were no relief funds from the federal government, losses in net income would be as high as $92 billion, which further emphasizes the magnitude of losses hospitals will likely continue to face through the end of 2021.”


To be sure, the pandemic has paralyzed hospital finances especially in communities where vaccination rates are low. Per the CDC, the seven-day average of new hospital admissions of COVID-19 patients increased from 1,900 to 11,168 in the last 3 months—a 488% increase. As of September 27, 80% of the nation’s 85,442 ICU beds were occupied: 27% of these due to Covid. And 78% of the nation’s 769,683 hospital beds were occupied: 11% of these due to Covid. Adding to costs and cutting into bottom lines, nurse shortages have forced hospitals to depend more heavily on travel nurses paying as much as $8,000/week.

For sure, the pandemic has created a surge in hospital utilization and added to operating costs. That said, no one knows for sure how hospital finances will be impacted longer term by the Delta variant or subsequent variants. The Kaufman Hall analysis is based on a sampling of 900 hospitals representative of all 6090 U.S. hospitals by size, location et al. Analyses and forecasts by other organizations (Optum, Premier, FAIR Health, and others) vary widely based on their proprietary methodologies. The estimated costs per hospitalization are equally wide-ranging– from $20,000 to as much as $317,000 depending on severity, location and ownership. And it’s uncertain what the Delta variant’s impact will be for non-Covid related hospital utilization or how fast i.e. in 2020, planned admissions dipped to 69% in April only to recover to 94% by the end of the year.

So, there are lots of unknowns but a few things we know for sure:

The Impact of the Pandemic on Hospital Finances will be Uneven

Bigger hospitals will fare better, and those in states and rural areas with low vaccination rates will be hardest hit (Per the CDC, only 7% of hospitalizations and 8% of deaths have occurred among fully vaccinated patients). Notably, only 2 of Moody’s 25 investor-owned hospital systems were rated negative for credit quality in its most recent report and 21 were classified as stable or positive. The outlook for not-for-profits is less rosy than investor-owned systems due to factors beyond their exposure to Covid patients. And for all hospitals, the added costs for travel nurses and threat of protracted vaccine hesitance among patient and in their workforces will hurt bottom lines. Some are able to absorb those hits better than others.

Private Insurers will Play a Significant Role in Determining the Financial Impact of the Pandemic on Hospital Finances

In 2020, 73% of all Covid hospitalizations were the elderly. The current wave is younger: the Covid hospitalization rate for youth (0 to 17) has increased five-fold in the last three months and vaccination rates among those under 50 years of age are below 40% in many communities. Complicating matters, many health insurers have announced they’re not planning to cover Covid testing and related costs and employers are asking their insurers who bears financial responsibility for hospitalizations in their benefits’ plans. For example, FAIR Health calculated average billed charges for a complex Covid-19 hospitalization could reach $317,810, but only $98,139 after payments from both the insurance plan. The rest might be an obligation of the individual or potentially bad debt to hospitals. It’s unclear. How private insurers address their coverage and denial policies will have a significant impact on hospital finances.

Demand for Inpatient Hospital Services will Continue to Decline in 2021 and Beyond

Before the pandemic began, the core inpatient business for hospitals was in decline. Technology-enabled clinical innovations have reduced demand for inpatient care by 14.6% over the last two decades though patient severity increased and as bed utilization shifted to medical (non-surgical) care—now 71% of all patient days. Thus, the financial sustainability for the majority of community hospitals is increasingly dependent on outpatient, physician and post-acute services rather than inpatient care. And all face cost-containment pressure from insurers, employers, consumers and policymakers for whom the issue of affordability is most closely associated with hospital and prescription drug costs.

The pandemic will have a negative financial impact on many (not all) hospitals but how much is unclear. And factors beyond the pandemic will determine the long-term financial sustainability for all.


P.S. This week, debate begins in Congress about the Biden administration’s $1.2 trillion infrastructure and $3.5 trillion reconciliation bill that includes several health programs. Also looming: the federal debt ceiling with the threat of a government shutdown lingering unless Congress approves expansion (which it has routinely approved 78 times since 1960). Stay tuned.


“National Hospital Flash Report Summary: August 2021” August 23, 2021; Kaufman Hall

“Trends in Overall and Non-COVID-19 Hospital Admissions”; February 18, 2021; Kaiser Family Foundation

Kadri et al “Potential Implications of SARS-CoV-2 Delta Variant Surges for Rural Areas and Hospitals”; JAMA Network

“Strategy and M&A survey results: Global Capital Confidence Barometer”; EY

Healthcare Cost and Utilization Project, AHRQ


U.S. Stats (CDC, FDA)

  • Vaccinations 9/24/21): 64.2% have had one dose and 55.2% are fully vaccinated

  • New cases: 86,859 recorded 9/25/21

  • Hospitalizations: During April 4–July 17 (latest available), there were 34,972 (92%) hospitalizations, and 6,132 (91%) COVID-19–associated deaths among persons not fully vaccinated, and 46,312 (8%) cases, 2,976 (8%) hospitalizations, and 616 (9%) deaths were reported among fully vaccinated persons in the 13 jurisdictions. During April 4–June 19, fully vaccinated persons accounted for 5% of cases, 7% of hospitalizations, and 8% of deaths overall.

  • Deaths: 662 recorded 9/25/21 (total 687,764 to date)

  • Case rates per million (8-29-21): Total population 267, 21among those Vaccinated and 538 among those unvaccinated

Boosters: On September 23, the Advisory Committee on Immunization Practices (ACIP) voted to recommend a single Pfizer/BioNTech COVID-19 vaccine booster dose (at least 6 months after the primary series) for the following populations:

  • Persons ≥65 years of age and long-term care facility residents;

  • Persons 50–64 years of age with underlying medical conditions; and

  • Persons (based on individual benefit and risk) 18–49 years of age with underlying medical conditions.

Notes: 20 million people could get boosters immediately because they had gotten their second Pfizer-BioNTech shots at least six months ago and 60 million people will be eligible for a third Pfizer shot over the coming months. The F.D.A. is reviewing data for a Moderna booster but has not received an application from Johnson & Johnson for a booster of its vaccine.

Antivirals: At least three promising antivirals for covid are being tested in clinical trials, with results expected as soon as late fall or winter:

  • The top contender is a medication from Merck & Co. and Ridgeback Biotherapeutics called molnupiravir, a candidate from Pfizer, known as PF-07321332, and AT-527, an antiviral produced by Roche and Atea Pharmaceuticals. They work by interfering with the virus’s ability to replicate in human cells.

  • To date, only one antiviral drug, remdesivir, has been approved to treat covid. But it is given intravenously to patients ill enough to be hospitalized, and is not intended for early, widespread use.


Study: Rural Hospital Consolidation Associated with Modest Quality Improvement

Researchers analyzed 172 merged hospitals and 266 comparison hospitals in 32 states that remained independent compared pre-merger to post merger changes in in-hospital mortality for common conditions and complications for elective procedures for the period from 2009-2016.

  • “Adjusted for patient, hospital, and community characteristics, decreases in mortality among stays for acute myocardial infarction, heart failure, stroke, and pneumonia post-merger were greater at merged hospitals than at comparison hospitals.”

  • Greater pre-merger to post merger decreases in mortality at merged vs comparison hospitals were also observed at 5 years post-merger among stays for heart failure, stroke and pneumonia.

Note: More than one-third of US community hospitals are located in rural areas, serving as the principal source of care for 60 million people, nearly 20% of the US population.

Jiang et al “Quality of Care Before and After Mergers and Acquisitions of Rural Hospitals”; September 20, 2021; JAMA Network Open

Study: 2 in 5 Adults and 1 in 5 Youth Obese

From the 18th annual report by Trust for America’s Health on obesity in the United States:

  • 42.4 of adults and 19.3% of youth 2-19 were obese in 2020—both up 40% in the last 20 years.

  • In 2020, adult obesity rates topped 35% in 16 states, up from 12 states in 2019. Between 2015 and 2020, half of states (26) had statistically significant increases in their adult obesity rates.

“The State of Obesity: Better Policies for a Healthier America”; Trust for America’s Health

Study: 5% of Population Accounts for 50% of Spending

Researchers analyzed data collected from the Medical Expenditure Panel Surveys collected between 2001 and 2018. Findings:

  • The top 4.6% of the US population by spending accounted for 50% of health care expenditures.

  • In 2001, one-half of all expenditures on prescription drugs were concentrated in 6.0% of the US population, but by 2018, this proportion had decreased to 2.3% of the population.

  • In 2001, one-half of all expenditures on prescription drugs were concentrated in 6.0% of the US population, but by 2018, this proportion had decreased to 2.3%. “This change does not appear to be associated with a change in the overall share of prescription drug expenses, which increased by only a small amount, from 20.4% in 2001 to 24.8% in 2018.”

Holle et al “Trends in the Concentration and Distribution of Health Care Expenditures in the US, 2001-2018”; September 14, 2021; JAMA Network Open

Morning Consult: Institutional Trust Slipping Except for Military and Scientific Community

Morning Consult has tracked institutional trust in six institutions: the military, police, American companies, Supreme Court, media and government since September 2020. Results from its most recent survey conducted September 16 – 20, 2021, among 2,200 U.S. adults with a margin of error of 2%:

  • The news media and government are the most polarizing institutions: In the latest survey, 61% of Democrats say they trust the news media, and only 20% of Republicans say the same. The government is the second most polarizing institution, with a 33-point gap between Republican and Democratic trust.

  • The military and the scientific community are among America’s most trusted institutions:3 in 4 Americans trust the military and 7 in 10 trust the scientific community, roughly in line with the average over the past 11 months Gen Z has the lowest level of trust for every institution tracked: Only 47% of Gen Z’ers trust the military and 43% trust the police. On the other hand, more than 8 in 10 Baby Boomers say they trust each of those two institutions. Gen Z is also 30 percentage points less likely than Baby Boomers to trust American companies.

  • After dipping to a low point of 52% in early September, the share of Americans who trust the Supreme Court currently stands at 53%.

“Tracking Trust in U.S. Institutions”; September 23, 2021; Morning Consult


KFF Study: Low-Income Hardest Hit if Marketplace Subsidies Suspended after 2022

The American Rescue Plan Act (ARPA) passed earlier this year temporarily expanded subsidies for low-income families available in the Affordable Care Act (ACA) health insurance Marketplaces, through the end of 2022. Democrats favor similar strategies to reduce the cost of ACA marketplace plans to enrollees and extend subsidies beyond 2022. Projected impact:

Current subsidies through 2022 added $34.2 billion to the deficit per the CBO. People with incomes between 1 and 1.5 times the poverty level currently represent 42% of enrollees, and now pay nothing or next to nothing for their monthly premium. Before the ARPA, these individuals had to contribute more than 2% of their income toward the benchmark silver plan premium. These lowest-income enrollees would therefore see the steepest percent increases if ARPA subsidies expire. “We estimate that 3.7 million people (most with incomes between 4- and 6-times poverty) gained subsidy eligibility with the ARPA.”

“How Marketplace Costs and Premiums will Change if Rescue Plan Subsidies Expire”; September 24, 2021; Kaiser Family Foundation

Carried Interest Target of Attention for Dems Seeking to Reduce Private Equity Profits

As Democratic lawmakers grapple with the tax code, some are proposing a change in carried-interest profits that could have significant impact on private equity investments in healthcare and other industries. (Carried interest is the General Partners share (typically 20%) of money returned to investors after a liquidity event. Alongside the management fee, a 2% annual fee on capital managed by a fund, carried interest is an important component of the “2 and 20” fee structure that underpins private funds).

Under the current system, carried interest earned is treated as capital gains i.e. 23.8% (20% net capital gains tax plus a 3.8% net investment income tax) instead of operating income which is taxed at 40.8% provided the fund has held onto an asset for more than three years. Democratic lawmakers want to extend that to five years or longer.

Note: According to PitchBook, US buyout firms’ holding periods have been shorter: the median hold period has fallen from 6.2 years in 2014 to 4.9 years in 2021.For venture capital in the US, meanwhile, median holding periods—dated from the first VC round—have risen from 4.8 years to 5.5 years in the same period.

“Private Funds Might have to Give up a Bigger Share of their Profits”; September 26, 2021; PitchBook