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This course describes how organizations use budgets and presents an overview of types of budgets. It outlines steps in the budgeting process and describes two common budgeting methods. It reviews common cost behaviors and explains how they ...
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Blog | Budgeting

COVID-19 outbreak will negatively impact U.S. hospital finances

Blog | Budgeting

COVID-19 outbreak will negatively impact U.S. hospital finances

  • Hospitals in Northern Italy are reportedly beyond capacity due to the impact of COVID-19 even though Italy has approximately 14% more inpatient beds than are available in the U.S., according to reports in two major national newspapers.
  • The New York Times reported that 2.4 million to 21 million people in the U.S. could require hospitalization due to COVID-19, but there are only about 925,000 inpatient beds available in the U.S.
  • While reports of patients cancelling and postponing elective procedures during the COVID-19 outbreak can free up hospital beds and resources, the loss of revenue from these higher-margin procedures could negatively impact hospitals’ finances well into the future, according to HFMA’s Chad Mulvany.

Both The New York Times and The Wall Street Journal released articles last  week describing the impact of COVID-19 on Italian hospitals. In Northern Italy, the most affected region, hospitals are reportedly beyond capacity, leaving providers to decide how to allocate scare resources among critically ill patients. Based on OECD data, Italy has approximately 14% more inpatient beds (3.2 versus 2.8 per 1k) than the U.S.

The CDC has run a range of scenarios, which suggests, according to a recent Times article that, between “2.4 million to 21 million people in the U.S. could require hospitalization. The U.S. has only about 925,000 staffed hospital beds. Fewer than a tenth of those are for people who are critically ill.”

Takeaway

Many U.S. hospitals are currently working to create additional inpatient capacity. Recent physician survey data and reports from a hospital already suggest that in the prior weeks, elective procedure volume has been falling, which naturally creates capacity. Canceling additional elective procedures will add additional capacity to the system. For example, for one system mentioned in the Journal article, cancelling all elective procedures would create 25% to 30% more capacity. However, that alone may not be enough.

Hospitals and health systems across the country are also searching for additional space in which they can set up hospital beds given the severity of projections. With the declaration March 13 of a national emergency related to COVID-19, CMS (CMS’s “Health Care Providers Fact Sheet”) has removed many of the regulatory barriers to quickly expanding capacity. These include a temporary waiver of the SNF three-day waiver requirement, CAH bed and LOS requirements, housing acute patients in excluded units, and allowing for expedited provider enrollment processes. It also opens $50 billion dollars in additional funding to support states.

Many hospitals are activating plans to provide support services for care givers who have been, or may be, impacted by other closures, such as school/daycare closures.

The increased emergency operating costs related to space, supplies and staffing will be significant. This coupled with lost revenue from typically higher-margin elective cases, which may or may not be rescheduled in a future period, will negatively impact hospital finances and their ability to provide care in future emergencies.

The current coronavirus relief package that will likely be passed early this week may provide some support. As of noon March 13, legislative text was not available, but items under discussion, but wouldn’t explicitly provide additional funds to hospitals for creating surge capacity, were increased and included:

  • State Medicaid matching rates
  • COVID-19 testing without cost sharing
  • Increased social supports for individuals who currently don’t have sick leave or become unemployed

The additional funds for creating surge capacity will likely be addressed in a future piece of legislation.              

About the Author

Chad Mulvany, FHFMA,

is director, healthcare finance policy, strategy and development, HFMA’s Washington, D.C., office.

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