COVID-19 in 2021: The Potential Effect on Hospital Revenues - February 2021
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February 2021 COVID-19 in 2021: The Potential Effect on Hospital Revenues
COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
How could COVID-19 affect the financial health
of hospitals in 2021?
In 2020, COVID-19 undermined our nation’s health and severely In this report, Kaufman Hall used historical hospital revenues
tested our hospitals and health systems. At the same time that a and different possible paths for these three recovery factors to
series of spikes in COVID-19 cases and hospitalizations put intense forecast 2021 hospital revenue, a critical criterion in determining
pressure on hospital staff and resources, steep declines in non- the financial health of America’s hospitals. The report presents
COVID-19 volume led to sharply lower revenues. two scenarios related to the three recovery factors—one more
optimistic and one more pessimistic. Both scenarios are realistic,
As hospital executives, policymakers, and other stakeholders
and both show a significant revenue loss compared with what
seek to understand hospitals’ financial state in 2021, a new set of
would be expected absent the effect of COVID-19. The report also
interconnected factors must be considered:
shows expense factors associated with COVID-19 likely to continue
Recovery of hospital volumes: The degree and pace at which
to pressure hospital finances as the pandemic continues.
inpatient, outpatient, and emergency department volumes return
COVID-19 vaccine progress: The availability of vaccines, This report was prepared at the request of the American
the speed of distribution, and the prioritization of different Hospital Association.
populations for vaccination
Decline in COVID-19 cases: The degree and pace at which
COVID-19 cases decline, based on public use of social distancing
and achievement of herd immunity
© 2021 Kaufman, Hall & Associates, LLC. All Rights Reserved. This article may not be mass produced or
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modified without the express written consent of Kaufman, Hall & Associates, LLC.Key Findings kaufmanhall.com 3
COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
Under an optimistic scenario, hospitals could face a
$53 billion total revenue loss in 2021
2021 Potential Revenue Loss in $Billions — All U.S. Hospitals
$0
KEY SCENARIO FACTORS
$10 1. Consistent, complete recovery of volumes:
$27 Outpatient
Revenue Consumers and hospitals return to pre-COVID
volumes and revenue
$20
Lost Revenue in $Billions
2. Quick vaccine progress: Supply, distribution, and
administration are not delayed; at-risk individuals
$30
are prioritized over others
$17 Inpatient
Revenue
3. Sustained ramp-down of COVID cases:
$40
Residents continue to social distance until herd
immunity is achieved and social distancing is no
$50 $9 Emergency
Dept Revenue
longer required
$60 $53B TOTAL
Represents about 4% of
total hospital revenue1
1. Calculated as total potential revenue loss divided by All Hospital Revenue from Q3 2019 through Q2 2020 from St. Louis Federal Reserve FRED Database
Note: Revenues do not include potential additional government support.
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Under a pessimistic scenario, hospitals could face a
$122 billion total revenue loss in 2021
2021 Potential Revenue Loss in $Billions — All U.S. Hospitals
$0
KEY SCENARIO FACTORS
$20
1. Slow, partial recovery of volumes: Consumers
$64 Outpatient
Revenue and hospitals adapt to a “new normal” for
$40
volumes and revenue post-pandemic
Lost Revenue in $Billions
2. Slow vaccine progress: Vaccine supply and
$60
distribution are delayed, with continued
administration challenges
$80
$41 Inpatient
Revenue 3. Cyclical COVID surges: Residents stop social
$100 distancing before herd immunity is achieved,
which contributes to a cyclical rise in COVID-19
$120
$17 Emergency
Dept Revenue
cases and hospitalizations
$140
$12 2B TOTAL
Represents about 10% of
total hospital revenue1
1. Calculated as total potential revenue loss divided by All Hospital Revenue from Q3 2019 through Q2 2020 from St. Louis Federal Reserve FRED Database
Note: Revenues do not include potential additional government support.
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modified without the express written consent of Kaufman, Hall & Associates, LLC.COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
The pandemic will stress hospitals’ expenses
in addition to revenue
In 2020, hospitals experienced increases in certain expenses due to COVID-19; these expense pressures could continue into 2021 as the
pandemic continues. On a volume-adjusted basis, the following expense categories had the greatest increases over non-pandemic timeframes.
Expense Metric per 2020 Increase
Adjusted Discharge Over 2019 Additional COVID-19 Context
Drug Expense 17% Hospitals saw their volume-adjusted drug expenses increase, as the patients being
admitted to the hospitals increased in severity and required more therapeutics,
including COVID-19 patients.
Purchased Service 16% Hospitals saw an increase in purchased services as a number of areas required
Expense specialized functions to be brought in, such as environmental services and sterilization
for maintaining safe spaces with COVID-19 patients.
Labor Expense 14% Labor expenses increased despite many hospitals furloughing portions of their
workforce. Contract labor, hazard pay, and other elements contributed to the expense
in order for hospitals to maintain a safe and effective process for patients and
employees alike.
Supply Expense 13% Supply expenses also dramatically increased as hospitals scaled up their purchasing
of personal protective equipment and other equipment to safely treat patients.
Shortages throughout the year of various types led to higher prices of some items.
Source: Kaufman Hall National Hospital Flash Reports, January through December 2020
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COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
In 2021, COVID-19 will continue to undermine the
financial health of America’s hospitals
Before COVID-19, America’s hospitals were experiencing downward Our forecast that total hospital revenues in 2021 could be down
revenue pressure from both government and commercial payers, between $53 billion and $122 billion (4 percent to 10 percent of total
resulting in a very thin 2.5 percent median margin in 2019, according revenue) is bad news, indeed.
to the Kaufman Hall Operating Margin Index. At the same time,
Whether recovery from COVID-19 in 2021 is relatively rapid or
hospitals have been challenged to invest heavily in digital health
relatively slow, America’s hospitals will face another year of struggle
and other forward-looking capabilities, which emerged as critical
to regain their financial health while providing necessary care and
when COVID-19 struck.
services to a nation that is continuing to experience the effects of
an unprecedented pandemic.
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modified without the express written consent of Kaufman, Hall & Associates, LLC.Methodology kaufmanhall.com 9
COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
Kaufman Hall’s approach to modeling potential COVID-19
effects focused on three key questions
What market forces will affect volume and
1 financial recovery?
Unemployment and payer mix shifts
VO Consumer price sensitivity and delays in care due to cost
T LU
T EX M Patients’ willingness to return
N
Reduced travel and tourism
CO
E
RE
MARKET
COVERY
COVID 2
What are the anticipated volume recovery trends
Impact across forecast groups?
Lag in return to hospital vs. ambulatory
Required capacity and resource constraints
IM COVID-19 hospitalization scenarios
PA S
CT SCENAR IO
How do we anticipate impact across the healthcare
3 provider landscape?
Link model outputs to global drivers
Develop potential scenarios and sensitivity analyses
© 2021 Kaufman, Hall & Associates, LLC. All Rights Reserved. This article may not be mass produced or
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modified without the express written consent of Kaufman, Hall & Associates, LLC.COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
COVID-19 scenario projections were a fundamental input
Given high levels of uncertainty in COVID-19 predictions, our
methodology included identification of the key drivers to
Our approach focused on
inform the shape of COVID-19 “curves” across U.S. markets,
and illustration of these COVID-19 “curves” to highlight
understanding the COVID-19
potential scenarios.
Key drivers of COVID-19 spread are informed by market, social drivers and the historical market
behavior, and policy factors (e.g., testing) that can indicate
whether an increase or decrease in COVID volume is likely. “archetypes” to inform scenarios
Historical COVID-19 archetypes across U.S. markets highlight
the interplay between the case load spread and attempts to
limit the spread of the virus over time.
The analysis also considered the potential effects of
vaccination efforts.
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modified without the express written consent of Kaufman, Hall & Associates, LLC.COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
The intensity and speed of impact of vaccine rollout
could vary greatly
RAPID IMPACT DELAYED IMPACT
Accelerated decline in hospitalizations due to vaccine Delayed decline in hospitalizations due to vaccine rollout
rollout to at-risk populations to at-risk populations
Readily available vaccine supply with no delays in Delays in distribution and administration due to limited
distribution and administration vaccine supply
Our two scenarios incorporate variables for vaccine distribution, consumer return to care, and volume recovery
OPTIMISTIC PESSIMISTIC
Ramp-down in COVID-19 cases/hospitalizations; Cyclical surges in COVID-19 cases/hospitalizations;
rapid vaccination progress delayed vaccination progress
Vaccine: Supply, distribution, and administration are not Vaccine: Vaccine supply and distribution are delayed
delayed; at-risk individuals are prioritized over others with continued administration challenges
Social Distancing: Residents continue to social distance Social Distancing: Residents stop social distancing
until herd immunity is achieved and social distancing is before herd immunity is achieved, which contributes to
no longer required cyclical rise in COVID Cases / Hospitalizations
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modified without the express written consent of Kaufman, Hall & Associates, LLC.COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
COVID-19 scenarios were applied to major
hospital revenue drivers
OPTIMISTIC PESSIMISTIC
Inpatient 2,350 2,350
Days
2,250 2,250
Adjusted Patient Days
Adjusted Patient Days
Outpatient 2,150 2,150
Visits 2,050 2,050
Derived from 1,950 1,950
OP revenue per 1,850 1,850
patient day * 1,750 1,750
1,650 1,650
M 20
M 20
20
Se 0
N 20
Ja 0
M 21
M 21
21
Se 1
N 21
Ja 1
M 22
M 22
22
Se 2
N 22
22
M 20
M 20
20
Se 0
N 20
Ja 0
M 21
M 21
21
Se 1
N 21
Ja 1
M 22
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Se 2
N 22
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Historical Forecast Historical Forecast
Emergency 2,800 2,800
Department 2,600 2,600
Visits 2,400 2,400
2,200 2,200
ED Visits
ED Visits
2,000 2,000
1,800 1,800
1,600 1,600
1,400 1,400
1,200 1,200
1,000 1,000
M 20
M 20
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Se 0
N 20
Ja 0
M 21
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Se 1
N 21
Ja 1
M 22
M 22
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Se 2
N 22
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M 20
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20
Se 0
N 20
Ja 0
M 21
M 21
21
Se 1
N 21
Ja 1
M 22
M 22
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Se 2
N 22
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l2
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Historical Forecast Historical Forecast
* Outpatient revenue effects were partly derived from the inpatient volume, by using IP/OP adjustment factor trends, share of visit revenue from total outpatient revenue, and other factors in which
inpatient volume is linked to outpatient revenue.
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modified without the express written consent of Kaufman, Hall & Associates, LLC.COVID-19 IN 2021: THE POTENTIAL EFFECT ON HOSPITAL REVENUES
Qualifications, Assumptions and Limiting Conditions (v.12.08.06):
All information, analysis and conclusions contained in this Report are provided “as-is/where-is” and “with all faults and defects”. Information furnished by others,
upon which all or portions of this report are based, is believed to be reliable but has not been verified by Kaufman Hall. No warranty is given as to the accuracy
of such information. Public information and industry and statistical data, including without limitation, data are from sources Kaufman Hall deems to be reliable;
however, neither Kaufman Hall nor any third party sourced, make any representation or warranty to you, whether express or implied, or arising by trade usage,
course of dealing, or otherwise. This disclaimer includes, without limitation, any implied warranties of merchantability or fitness for a particular purpose (whether
in respect of the data or the accuracy, timeliness or completeness of any information or conclusions contained in or obtained from, through, or in connection with
this report), any warranties of non-infringement or any implied indemnities.
The findings contained in this report may contain predictions based on current data and historical trends. Any such predictions are subject to inherent risks and
uncertainties. In particular, actual results could be impacted by future events which cannot be predicted or controlled, including, without limitation, changes
in business strategies, the development of future products and services, changes in market and industry conditions, the outcome of contingencies, changes in
management, changes in law or regulations. Kaufman Hall accepts no responsibility for actual results or future events.
The opinions expressed in this report are valid only for the purpose stated herein and as of the date of this report.
All decisions in connection with the implementation or use of advice or recommendations contained in this report are the sole responsibility of the client.
In no event will Kaufman Hall or any third party sourced by Kaufman Hall be liable to you for damages of any type arising out of the delivery or use of this
Report or any of the data contained herein, whether known or unknown, foreseeable or unforeseeable.
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All rights reserved. Reproduction or reuse in whole or in part is prohibited except by permission.
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