Texas hospitals face skyrocketing spending, shrinking profit margins as delta variant spreads

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The burgeoning delta variant is taking a heavy toll on hospitals, especially in Texas, where COVID-19 hospitalizations are near last winter’s record high.

From June to July, operating profit margins fell 45% for Texas hospitals, triple the decline for hospitals nationwide, according to Kaufman, Hall & Associates, a consulting firm that tracks data from over of 900 hospitals.

Texas’ weak performance exceeded a single month. From January to July, Texas hospital margins fell 16% from the same period in 2019, before the pandemic. Nationally, hospital margins fell 7%, less than half.

And that’s before the August and September results, when statewide COVID hospitalizations doubled from their peak in July.

The decline in profitability for Texas hospitals “is markedly different, and that’s quite worrisome,” said Erik Swanson, senior vice president of Kaufman Hall’s data and analytics group. “And it doesn’t look like there’s a very rapid slowdown in that trend.”

Hospitals typically have small operating margins, so even small declines can be significant, he said. These margin declines exclude federal CARES assistance, which has been crucial in bolstering the finances of many providers.

Kaufman Hall reports results with and without the aid, and Swanson said it’s important to get a sense of how basic operations work on their own: “It gives us a clearer view,” did he declare.

Texas hospitals also saw a 7.4% decline in margins on earnings before interest, taxes, depreciation and amortization — an important metric for funding future initiatives.

Hospital leaders will be cautious about making investment decisions, said Stephen Love, CEO of the Dallas-Fort Worth Hospital Council, which represents local industry.

“When they look at capital investments, they can ask if they can defer it for three to six months,” he said. “And they just might. They’re really going to focus on getting the costs right until we get there.

“I wouldn’t say it’s a dire situation, but I would say it’s a cautious situation,” Love said.

Hospitalization costs are rising sharply, especially here. For the first seven months of 2021, spending was up 11.5% in Texas compared to the same period in 2019. Nationally, total spending was up 8%.

Texas’ gap was even bigger on labor. In Texas, labor costs rose 15.2% from 2019, while they rose 9.3% nationally.

Much of this can be attributed to the spread of the delta variant. Texas is again a COVID hotspot, and it’s expensive to care for COVID patients, as they need extra supplies, medications, and specialists, including respiratory therapists and critical care doctors.

The shortage of health workers has caused salaries to skyrocket and some are quitting to work as traveling staff.

COVID patients often require multiple days of treatment, and the average stay at Texas hospitals increased 5.3% from 2019. This is generating more revenue, and Texas hospitals saw a 7 .1% of their gross income during the first seven months of the year.

But COVID has pushed up spending even more, in part because hospitals are treating sicker patients who need more help.

There’s another COVID-related financial hit: More and more people are putting off plans for surgery and other treatments.

In rare cases, a hospital will put non-essential surgery on hold because it needs to dedicate staff to COVID patients. More often than not, the news of rising cases is enough to discourage some from going to their providers.

“A lot of it is really based on patient behavior,” Swanson said. “They make their own decisions about safety and health, and when to resume that care.”

Patients often receive routine treatment on an outpatient basis, which is generally more cost-effective. In July, outpatient revenue at Texas hospitals fell 2.1%, and Swanson said that’s often a leading indicator of where the trend is headed.

Over the past seven months, outpatient revenue at Texas hospitals is up 3.6% from 2019. But hospitals across the country saw a 10% increase. The combination of activities – geared towards more revenue for hospitalized patients – contributes to the decline in profitability here.

Another measure, minutes in the operating room, also reflects attitudes toward seeking care. In Texas hospitals, operating minutes fell 3.5% in the first seven months of 21, while they rose slightly nationally.

“It may indicate the same consumer behavior,” Swanson said. “Audiences react to what they see.”

In the service area that includes North Texas, more than 50% of intensive care patients are being treated for COVID — near the peak reached a few weeks ago, the hospital board’s Love said. The number of COVID hospitalizations here was higher in January, but more patients today need intensive care.

“We have sicker patients, younger patients, and patients, frankly, who need a lot more treatment and a lot more staff,” Love said.

Rising COVID cases also threaten the broader economic recovery. In August, the United States added only 235,000 non-farm payrolls, down sharply from the 1.05 million jobs added in July and the 962,000 jobs added in June.

Blame it on the increase in the delta variant, which largely infects the unvaccinated.

“It really hurt the economy,” said Vivian Ho, a health economist at Rice University.

Several business conferences she had planned to attend, including in Washington next month, have again been converted to virtual events. She’s frustrated that so much pandemic attention is being given to those who don’t want to get vaccinated or who want to party side by side like the crisis is over.

“They’re forgetting the group that’s very scared of COVID,” Ho said, which she says is a big reason for the financial strain on Texas hospitals.

“My husband and I are conservative in what we’re willing to do, but there are plenty of others who are more fearful than us,” Ho said. service unless absolutely necessary.”

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