Even though some facilities’ volumes hadn’t fully recovered at the end of 2020, the higher acuity patients—which tend to yield more revenue—helped make up the difference from fewer big-ticket surgeries and other patients, Sahrbeck said. That means even if a system’s volume was down 10%, for example, its revenue may have only been down 8% or 9%, he said. Hospitals

When the U.S. economy shed 20.5 million jobs in April 2020, many hospital executives assumed that would translate to more patients covered under Medicaid, high-deductible private plans or going without insurance, a change that would have dampened reimbursement. By and large, that hasn’t happened yet.

“We were surprised,” Benjie Loanzon, senior vice president of finance and corporate controller of Chicago-based CommonSpirit Health, said on a recent investor call. “We were kind of expecting that there’s going to be a decline in commercial payer mix, but we haven’t experienced that.”

CommonSpirit grew its operating income by $233 million in the last six months of 2020 year-over-year even excluding its Coronavirus Aid, Relief, and Economic Security Act grants. The 140-hospital system said higher acuity also played a role.

Livonia, Mich.-based Trinity Health posted 72% higher operating income year-over-year in the back half of 2020 excluding federal grant money. The not-for-profit system with more than 90 hospitals said volume declines were partially offset by payment rate increases and higher acuity patients.

Wisconsin’s Froedtert Health is another not-for-profit system that performed well, with operating income up more than 50% in the last six months of 2020 excluding grants. The system cited higher acuity in its financial report.

On the investor-owned side, Nashville-based HCA Healthcare—a company that tends to outperform its peers financially—generated 33% higher profit in the final quarter of 2020 year-over-year even without any federal grant money. Like others, HCA’s leaders attributed the $1.4 billion in fourth-quarter profit to acuity and payer mix.

“It’s been interesting to me that the payer mix on a relative basis is actually slightly better, even though all categories are down,” HCA’s CEO, Sam Hazen, said on an investor call.

Two other investor-owned chains, Community Health Systems and Tenet Healthcare, cited the same trends in their fourth-quarter earnings calls. CHS grew its profit considerably in the quarter year-over-year even excluding its grants. Tenet would have posted a net loss in the fourth quarter if not for federal grants.

In addition to payer mix and acuity, hospitals’ ability to trim expenses was another factor that drove better-than-expected financial performances in 2020, Kes said.

Across all industries, the crisis seems to have given employers more leeway to cut costs without raising the ire of employees and others. Labor costs—hospitals’ biggest expense categories—tends to be a difficult category to trim, but some providers cut retirement contributions or issued furloughs during the pandemic.

“If you change benefits or change some PTO policies, maybe 2 or 3 years ago, employees would have raised a big stink about those issues,” Kes said. “Today they’re like, ‘Well, as long as I keep my job and hopefully these changes are temporary, I can live with that.'”

Despite providers’ higher returns, both Sahrbeck and Kes said it’s unlikely hospitals are profiting on COVID patients. Even with Medicare’s 20% add-on payment, the finances don’t tend to be favorable on patient who are hospitalized for two weeks, Sahrbeck said.

“There’s a lot of factors that drove why maybe some hospitals are having good years,” Kes said. “My off-the-cuff answer would be it probably isn’t because they’re making a ton of money on COVID patients.”

Source: Hospitals posted higher profits in second half of 2020 even as COVID cases soared


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