Though Two Analyst Reports Show Depressed Operating Margins for Healthcare, Providers and Clinical Laboratories May See Patient Volumes Rise for the Rest of 2020



July data shows some volume gains for providers since June; however, analysts say current predictions depends on progress of the COVID-19 pandemic

Clinical laboratory managers preparing strategic plans for 2020 and 2021 face a basic and key question: when and if they can expect patient volumes and associated lab test referrals to return to pre-COVID-19 pandemic levels.

Some insights into how to answer that question can be found in two separate reports. Separately, healthcare analysts from Advisory Board and Kaufman Hall explored possible COVID-19 case scenarios and implications for providers’ volumes and operating margins for the remaining months of 2020.

The Advisory Board analysts do not see a snap back to pre-pandemic volume levels happening this year. However, they do envision a gradual volume increase that has already started, they reported in “Projecting Volume Recovery through 2020.”

Patient Volumes Depend on COVID-19 Cases

With 200 experts and more than 4,500 member organizations, the Advisory Board, according to its website, “helps leaders and future leaders in the healthcare industry work smarter and faster by providing provocative insights, actionable strategies, and practical tools to support execution.”

In a Radio Advisory broadcast concerning volume outlook for 2020, Anna Yakovenko, Advisory Board Practice Manager, said there are two likely scenarios for patient volumes, each based on COVID-19 having:
  • An overall plateau of cases;
  • A potential of a second wave in advance of influenza season.


“We predict that we’ll continue to see a gradual increase in volumes through the year, getting close to pre-COVID-19 volumes,” Anna Yakovenko (above), Advisory Board Practice Manager, said during a Radio Advisory broadcast. She added, “We do think outpatient visits will climb at a higher trajectory, both because they fell the most and because those who delayed care will begin to return. In addition, outpatient surgeries will continue to see an increase probably eclipsing inpatient surgeries, especially those affected by COVID-19 pushing inpatient surgeries to outpatient.” Yakovenko leads best practices research on hospital strategic and operational challenges. (Photo copyright: Advisory Board.)

What If There’s a Second Wave of COVID-19?

The Advisory Board predicts that, even if a COVID-19 second wave occurs earlier than the traditional mid-autumn influenza outbreak, a gradual recovery for providers will still happen. “But then we think we’ll see a dip in volumes—not remotely the level of dip that we saw in March and April—but a dip nonetheless,” Yakovenko said.

In a blog post, Yakovenko cited a Moody’s Investors Service report showing healthcare systems with more patient encounters in May.  She wrote that providers need to overcome three pandemic-related issues to get volumes back on track in 2020:

  • Patients cancelling care because they are anxious;
  • Loss of jobs and insurance coverage resulting in decreased care demand;
  • Need for safety precautions, which could result in lower efficiency.

Kaufman Hall Report: Margins Could Go as Low as -11% in Q4 2020

The second report looked at hospital finances and patient volumes. It was done by Kaufman Hall, a Chicago firm providing management consulting services and software. The analysis by Kaufman Hall, released by the American Hospital Association (AHA) titled, “The Effect of COVID-19 on Hospital Financial Health,” predicted median hospital operating margin of -3% in the second quarter (Q2) of 2020, and a possible year-end range of -1% and -11% due to COVID-19. The report noted that—even before COVID-19—hospitals had a modest median margin (money made from operations) of 3.5%.

An AHA news release describes two COVID-19 case scenarios that could affect providers’ margins:

  • A steady decrease in cases could see median margin of -1% by the fourth quarter of 2020.
  • A case surge may result in margins of -11%.

Signs of Improvement in July 2020 Data

A Kaufman Hall National Hospital Flash Report in August showed hospital margins had plummeted and were down 96% since the start of the year, as compared to the first seven months of 2019. And even with federal funding through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, operating margins were down 28% January to July, compared to 2019, a news release stated.


“Hospitals have shown some incremental signs of potential financial recovery in recent months,” James Blake (above), Managing Director, Kaufman Hall, said in a news release. “Unfortunately, there is no guarantee these trends will continue, and hospitals still have a long way to go to recover from devastating losses in the early months of the pandemic,” he added. (Photo copyright: Kaufman Hall.)

However, Kaufman Hall’s analysts spotted signs of recovery that were evidenced in data for June to July, when operating margins improved 24% due to pent-up demand for patient services, Healthcare Dive reported.

Their analysis also showed that providers in July had boosts in discharges and surgeries due to resumption of elective procedures. Other data for the seven months ending July 31, and for the month-to-month period June to July, showed:

  • Operating margins fell 5% year-over-year, but rose 12% month-over-month.
  • Discharges were down 7% year-over-year, but up 6% month-over-month.
  • Emergency Department visits fell 17% compared to first seven months in 2019 and were up 10% month-over-month.
  • Operating Room minutes were down 15% year-to-date and up 3% month-over-month.
  • Inpatient and outpatient revenues (without CARES funding) are down 5% and 11%, respectively, year-to-date. Inpatient and outpatient revenues June to July increased 6% and 5%, respectively.

“Hospitals saw flat year-over-year gross operating revenue performance, continued high-per-patient expenses, and a fifth consecutive month of volumes falling below 2019 performance and below budget across most metrics. Emergency Department volumes have been hardest hit. Even, so July volumes continued to show some signs of recovery month-over-month,” the Kaufman Hall analysts wrote.

One Provider’s Financial Tale

Allina Health System in Minneapolis, Minn., experienced financial struggles but is reportedly experiencing the type of turnaround the Advisory Board and Kaufman Hall analysts predicted. Allina had an $85 million operating loss in Q2 2020, compared to $14.4 million loss in Q2 2019. But it had positive income for June, according to the Minneapolis/St. Paul Business Journal.

Clearly, the researchers studying patient volumes recognize that it is possible for patient volumes to return to pre-pandemic levels. However, a surge in the number of COVID-19 cases would obviously discourage patients from returning to get routine care and schedule elective procedures with their local hospitals. In turn, that would restrict the volume of clinical laboratory test referrals flowing into the nation’s medical laboratories.

Pathologists and medical laboratory managers should take into account these expert predictions and the supporting data in these two research reports as they plan staffing schedules and consider major purchasing of instruments and test supplies.

—Donna Marie Pocius



Related Information:


Advisory Board Expert Insights: Projecting Volume Recovery through 2020

Moody’s: Hospitals Are Seeing an Increase in Patient Volumes After COVID-19 Closures

The Effect of COVID-19 on Hospital Financial Health

New Analysis Shows Dramatic Impact COVID-19 on Hospitals and Health Systems

National Hospital Flash Report: August 2020

Hospital Operating Margins Down

Hospital Operating Margins Nearly Eliminated through July, Kaufman Hall Says

Allina Health Lost $40 Million a Week During COVID Lockdown, Q2 Results Say



Payer-Provider Partnerships Accelerating as Insurers and Healthcare Networks Look to Improve Care Quality and Reduce Costs

Shift from fee-for-service to value-based reimbursement is fueling increase in joint ventures and co-branded insurance products, creating opportunities for nimble clinical laboratories and anatomic pathology groups

As healthcare moves from fee-for-service to value-based reimbursement, health insurers and providers are joining forces at a steadily increasing rate, with nearly three-quarters of partnered products in early 2018 being joint ventures or fully co-branded insurance products. This trend presents an opportunity for clinical laboratories to help providers become more effective in their use of laboratory tests as they aim for better patient outcomes and lower treatment costs.

While health systems integrating with insurance services is not new, the roll out of the Affordable Care Act (ACA) in 2014 and its emphasis on value-based reimbursement helped create renewed interest in vertical integration, notes Becker’s Hospital Review.

According to consulting firm Oliver Wyman, the number of payer-provider partnerships has grown rapidly over the past six years, with 73% of the 22 insurance products launched in the first quarter of 2018 being joint ventures of co-branded offerings.

In comparison:

  • 22% of partnerships were joint ventures or co-branded in 2014:
  • 33% in 2015;
  • 57% in 2016; and,
  • 71% last year.

Of the 22 new payer-provider partnerships announced this year, 20 product announcements explicitly emphasized value-based compensation, while compensation was implied but not mentioned in the final two product-based partnerships.

“Payers and providers continue to be interested in forming product-based partnerships,” Oliver Wyman stated when releasing the new data. “Our analysis … continues to show a steady increase of trend toward deeper partnership, with more co-branding, greater levels of value-based financial alignment, and other forms of closer collaboration and joint ventures.”

Oliver Wyman cited several “notable” new entrants:

In addition, Oliver Wyman noted that national payers Aetna and Cigna added to their growing rosters of joint ventures in 2018.

Speaking with Healthcare Dive, Tom Robinson, Partner, Health and Life Sciences at Oliver Wyman, described this year’s new ventures as varying in type, size, location, and model. He noted that 50/50 joint ventures with co-branding have gained in popularity, however, accountable care organizations (ACOs), pay-for-performance, and bundled-payment models also are being formed. Robinson believes these vertical integrations offer opportunities for innovation.

“The point of these partnerships is to create something new, rather than just building the same old offerings with a narrow network,” Robinson said. “Successful partnerships will take the opportunity to innovate around the product and experience now that the incentives, insight, investment and integration are all for it.”

Oliver Wyman Health and Life Sciences Partner Tom Robinson discusses the emerging trend of payer-provider partnerships

In the video above, Oliver Wyman Health and Life Sciences Partner Tom Robinson discusses the emerging trend of payer-provider partnerships, and he highlights unique challenges and opportunities of these joint ventures. Click here to watch the video. (Photo and caption copyright: Oliver Wyman.)

Lower Costs, Improved Access, Through Payer-Provider Partnerships

In announcing Blue Cross Blue Shield of Rhode Island (BCBSRI), and Lifespan’s launch of coordinated healthcare plan BlueCHiP Direct Advance, BCBSRI President and Chief Executive Kim Keck pointed to the plan’s ability to drive down healthcare costs.

“We hear a consistent theme from our members—they want more affordable health plan options—and through our collaboration with Lifespan we are doing that,” Keck stated in a news release. “BlueCHiP Direct Advance is an innovative product that features Lifespan’s vast network of providers who are positioned to more effectively manage and coordinate a patient’s care. And, our partnership allows us to offer this new product at a cost that is 10% lower than our comparable plans.”

When Allina Health System of Minnesota and Aetna last year announced their partnership plans, Allina Chief Executive Penny Wheeler, MD, praised the ability of “payer-provider” partnerships to improve care coordination and increase access to preventive care.

Jim Schowalter, MPP, President and Chief of Executive of the Minnesota Council of Health Plans, told the Star Tribune the joint venture between the for-profit insurer and local health system would accelerate the shift within the state to value-based care.

“This is another effort in our state that moves us away from old fee-for-service systems,” Schowalter stated. “Working together, doctors and insurers can deliver better personal care and hold down medical expenses.”

While the future of the ACA and other healthcare reforms is uncertain, clinical laboratories and anatomic pathology groups should expect healthcare networks and insurers to continue to find ways of partnering. That means pathologists can expect to have an expanded role in helping providers improve patient outcomes and reduce healthcare spending.

—Andrea Downing Peck

Related Information:

Analysis: Payers and Providers Continue to Partner

Providers Becoming Payors: Should Hospitals Start Their Own Health Plans?

Payer-provider Partnerships on Record Pace

Blue Cross and Blue Shield of Rhode Island and Lifespan Partner to Bring Lower Cost Option to Rhode Island Residents in 2018

Security Health Plan Adds Mayo Clinic Health System to Provider Network

New Partnership Expands WellCare Members’ Access to UNC Health Alliance

Allina Health and Aetna to Launch Insurance Company in Minnesota