Despite Vaccine Rollout, Hospitals to Operate in Negative Margins

HBI Blog / Despite Vaccine Rollout, Hospitals to Operate in Negative Margins

More hospitals will be operating in the red in 2021 despite smooth vaccine rollout and reduced COVID-19 hospitalizations, according to a report from the American Hospital Association. The operating margins will be negative for more hospitals as compared to the pre-pandemic period.

The Marginal Differences

The analysis found that 39 percent of the hospitals throughout the country will have negative operating margins during the most optimistic COVID-19 scenario, as compared to 25 percent of the hospitals before the pandemic. Under the most pessimistic scenario, more than half of the hospitals will be operating in the red, with median margins down by almost 80 percent.

The outlook is even worse for the rural hospitals. Under the best scenario, the margins would be down by around 38 percent. However, under the worst scenario, the median margins will be 100 percent below the pre-pandemic baselines.

Negative Margins

Positive & Negative Margins

A positive operating margin ensures long-term survival for any business. However, it is crucial, particularly for hospitals. Positive margins enable investments in new treatments, innovative technologies, clinicians, and other staff along with more facilities.

Besides, positive margins also allow the hospitals to build reserves as a part of the preparation procedure for an uncertain future after the pandemic.

The Power of Negativity

The hospitals have already projected losses between $53B to $122B in revenue this year because of the effects of the unprecedented pandemic. They are still struggling even after a year later. The salary and pharmacy costs are way up than usual, and there is a steady acceleration in the supply chain expenses as well.

Possible Way Out

Hospital leaders are desperately calling for more financial support, including legislation that might help prevent more than $36B in Medicare spending cuts. The $1.9 trillion package, which was signed into law earlier last month, provided targeted relief for the healthcare providers, including $8.5B for rural providers.

The leaders want Congress to act as soon as possible to avoid real cuts in payments to help providers in the front lines, who are still dealing with an unprecedented pandemic that remains a national health emergency.

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