Moody's Investors Service in a preliminary report released last week said that while nonprofit hospitals saw a notable increase in cash on hand amid the pandemic, their operating margins declined significantly.
For the report, Moody's assessed financial data on 130 health systems, the majority of which had fiscal years that ended on June 30, 2020, with the balance ending on September 30, 2020. However, Moody's cautioned that because of "unprecedented effects of the pandemic," the preliminary findings in the report "may significantly differ from full fiscal 2020 results."
Moody's: Operating margins take a hit, but cash on hand increases
According to the preliminary report, nonprofit hospitals saw a substantial increase in their median days of cash on hand, from 44 days to 246.9 days, as well as their overall liquidity. That increase was spurred largely by Medicare advance payments, which accounted for roughly 30 to 40 days' worth of that growth, as well as deferred payroll taxes, the suspension of retirement contributions, and deferred capital spending, the report said.
However, Moody's said that nonprofit hospitals' profits declined significantly amid the pandemic. Specifically, nonprofit hospitals had a median operating margin of 0.5% in fiscal year (FY) 2020, down from 2.4% in FY 2019, and an operating flow margin of 6.7%, down from 8.4% in FY 2019. According to the report, funding from the Coronavirus Aid, Relief, and Economic Security Act "ranged from 14% to over 100% of operating cash flow."
Moody's also found that nonprofit hospitals' expenses grew in FY2020 at a 4.7% rate—lower than the rate of expense growth in 2019 (5.9%), but still outpacing revenue growth, which was 3%.
According to Moody's, the pandemic didn't result in a "significant shift in payor mix." Moody's said revenue from Medicaid and commercial payers remained relatively consistent between FY 2020 and FY 2019, while Medicare patient revenue increased slightly, and self-pay patient revenue increased from 5.1% to 5.5%.
Moody's also found that as patient volumes "declined across all categories"—as patients deferred care and hospitals suspended elective procedures—"acuity rose as hospitals continued to provide essential care." Specifically, the report found that outpatient surgeries declined by a median 8.9% in FY2021, admissions declined by a median 4.9%, ED visits dropped by a median 7.3%, and inpatient and observation stays together declined by a median 4.5%.
But as a result of suspended elective procedures and deferred nonemergent care, patients in 2020 tended to present with more severe illness and conditions, which contributed to higher reimbursement rates, the report said (Kacik, Modern Healthcare, 3/25; Paavola, Becker's Hospital CFO Report, 3/25; Moody's Investors Service, Sector Profile-Nonprofit and Public Healthcare US, 3/24).