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2020 HCIO Issue Brief: Hospital Finance
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Health Care Use Shrinks Pre-Pandemic, Spending Grows

In early 2020, few could have anticipated the drop in health care utilization spurred by the COVID-19 pandemic. Hospital and physician revenues plummeted as lockdowns prompted the cancellation of nearly all elective surgeries and discouraged people from seeking care.


This report provides a baseline of hospital revenue and utilization for 2018. Prior to the pandemic, St. Louis hospital service use was already declining. In the past decade, inpatient utilization decreased across public and private payers, including Medicare and commercial health plans.1 Privately insured patients saw the steepest drop in inpatient utilization, and outpatient use also declined (see graphs below); yet, spending climbed each year.


St. Louis Hospital Discharges
Commercially Insured Patients


St. Louis Outpatient Facility Use

Commercially Insured Patients


Source: Midwest Health Initiative. National Health Plans.


Source: Midwest Health Initiative. National Health Plans.


St. Louis’ three largest hospital systems, BJC HealthCare, Mercy, and SSM Health, provided more than 80% of hospital services to privately insured patients, according to data from the Midwest Health Initiative.2 Despite declining utilization from 2016 to 2018, government, employer, and private health plans paid these systems nearly $25.2 billion in revenue, a 16% increase since 2015. Revenue growth in the face of decreasing utilization suggests higher prices.

In recent years, St. Louis hospitals have consolidated into large systems, acquiring physician practices, hospitals, and outpatient service facilities. Many cite the health reform law as a significant driver of this trend to increase scale, improve integration of services to deliver cost-effective, value-based care, and promote population health management.

According to a recent American Hospital Association study, hospital acquisitions benefit the community by reducing revenue and cost as a result of gains in scale and clinical standardization. 3 This was not the case in St. Louis. From 2011 to 2018, revenue for BJC HealthCare, Mercy, and SSM Health grew 65%. Capital investment spending increased 70% to more than $21 billion. Salary and benefit costs increased 53% as the workforce grew and supply costs nearly doubled. 


Operating Margins Robust with Growth in Revenue

In 2018, hospital operating cash flow margins increased at St. Louis’ three largest systems (see graph below). Operating income grew 33% as revenues grew faster than expenses.

In 2020, BJC HealthCare, Mercy, and  SSM Health  hospitals in St. Louis received more than $200 million in federal grants to offset COVID-related losses.4 However,  these funds covered only 31% of  average combined  monthly hospital operating expenses for the systems, based on the most recent data available for 2018. This has resulted in thousands of layoffs and dramatic cuts in spending. 
Operating Cash Flow Margins
St. Louis Hospital Systems

Source: Centers for Medicare and Medicaid Services Medicare Cost Reports, Audited Financial Statements. Hospital operating cash flow margins exclude depreciation from operating expenses .


In previous recessions, health care was considered more insulated from the business cycle, generating reliable cash flow thanks to demand for elective procedures, especially by older Americans. By design, the prices of elective services have been subject to excessive markups. On the other hand, inpatient care was priced close to breakeven. However, the pandemic revealed the vulnerabilities of this business model, as hospitals lost revenue due to government guidance to minimize non-essential services to free up capacity, and patients avoided care due to fear of contracting the virus.

In St. Louis, acquisitions of hospitals, outpatient care facilities, and physician practices by the largest health systems have resulted in higher costs instead of efficiencies. As a result, $14 billion in reserves translates to only six to 12 months of expenses, depending on the individual system. Despite declining utilization, local hospitals have captured increasing revenues to cover rising expenses by charging private sector payers significantly higher prices for care than government-sponsored health plans.

While it is impossible to accurately estimate the full economic impact that will result due to the decline in utilization from the pandemic, this crisis has prompted the need to finally change the way we finance health care. The nation’s emphasis on specialty and hospital-based care has placed a heavy burden on the public and likely made hospitals more vulnerable financially. We need to dramatically increase our investment in primary care, reward hospitals for keeping patients healthy, and price services relative to their production cost. Aligning payments with value will help ensure the viability of health care providers and the communities that they serve.




1 St. Louis Health Care Industry Overview Chart Book: Utilization Trends (2009-2018).

2 Health Care Utilization and Market Share Trends, St. Louis MSA, 2016-2019, Midwest Health Initiative, June 2020.

3 M Noether, “Hospital Merger Benefits: Views from Hospital Leaders and Econometric Analysis - An Update,” American Hospital Association, September 2019.

4 COVID Stimulus Watch.

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