Column | Coronavirus

COVID-19 continues to play havoc with hospital financials

Column | Coronavirus

COVID-19 continues to play havoc with hospital financials

 

Gail R. Wilensky, PhD

In May, writing about the likely effects of the COVID-19 pandemic on hospital finances was relatively straightforward: The funding under the CARES Act was set, as was the basic distribution of the funds. But assessing the financial pressures on hospitals posed by the pandemic in July and moving forward is far more complex.

The country is clearly still in the midst of the pandemic — especially in states such as Florida and Texas, which apparently reopened prematurely. Even states such as Maryland and Virginia, which opened more slowly in stages after COVID-19 case rates had dropped substantially and were continuing to flatten, are seeing a rise in new confirmed cases. 

New cases on the rise, and hospital finances on hold 

The nation has seen a substantial increase in the use of hospitals beds and ICUs — particularly in areas that were hard hit by COVID-19. As of early July, according to the CDC, New York continued to have the highest number of cases reported, with over 400,000 cases as of July 8. The next highest numbers have been reported by California, Florida and Texas, following the recent spikes in these three states. 

One positive is that, even in the states or portions of states hardest hit, the demand for hospital space has not been as overwhelming as had been predicted. However, because of the predicted spikes in demand, most hospitals put on hold all other hospital care — including  elective surgeries, which are critical from a financial standpoint — to prepare for an expected surge in cases. 

A blow to the nation's economy

Shutting down what had been a vibrant economy that was running at full employment brought the nation’s long financial resurgence to a screeching halt, prompting fears we would see unemployment surpass levels last seen in the Great Depression. Although the actual rate of unemployment  — at 13.3% in May and 11.1% in June according to the Bureaus of Labor Statistics — did not reach the highest levels projected by some, the economy is still facing a long and uncertain period of recovery.  

What has been worrisome to many economists is the increase in June in the numbers of people who have permanently lost their jobs as opposed to being temporarily out of work. 

A blow to hospitals’ finances, and to many patients’ well being 

Similarly, hospitals’ financial recoveries also were brought to a sudden end by the need to limit care primarily to patients with COVID-19. Many hospitals’ executives were taken aback by this profound financial hit because their organizations had finally been showing some improved financial position by the early spring of 2020, after having reported anemic operating margins through 2018.  

At some point, it will be important to assess the medical damage and even loss of life that resulted from postponing all cancer, cardiac and other non-emergency surgery to ensure all possible medical resources would be available to treat an anticipated onslaught, with unknown proportions, of patients with COVID-19. What will be easier to assess is the financial impact of the challenges that hospitals have been reporting in their efforts to restart elective care, now that many clearly have the capacity to take on such care. 

A June survey from the American Hospital Association reported that inpatient volume was down just under 20% and the even more lucrative outpatient volume was down almost 35%, relative to baseline levels.1 The survey found that most hospitals do not expect to be back to baseline levels even by the end of the year, but the bleakness of that forecast may be somewhat exaggerated in the interest of securing more government assistance, which is a natural goal of the hospital lobby. 

The primary aid for hospitals thus far was provided in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law in late March, which provided for $100 billion of relief, and the Paycheck Protection Program and Healthcare Enhancement Act, which allocated an added $75 billion. According to The New York Times, much of the funds have gone to the biggest hospital systems serving the largest number of Medicare patients.2 Rural hospitals and hospitals that serve low-income populations have received much less.   

Even hospitals that have admitted very few COVID-19 patients are finding themselves struggling because of low occupancy rates. Many hospitals have found it challenging to convince both staff and patients that their facilities are safe and to have on hand adequate supplies of safety and testing equipment to ensure that patients and staff are, in fact, safe. 

Hospitals claim they are losing $50 billion per month, which suggests a four-month loss of $200 billion, an amount already exceeding the funding made available through the CARES Act at a time when cases have been resurging in many states. The funds provided have been intended simply to help hospitals function rather than to restore hospitals’ finances to a pre-COVID-19 level. The latter goal seems beyond anything Congress would expect or even intend to achieve. 

What may yet lie ahead

Going forward, hospitals should expect to face at least two different pressures.  

The first is that many parts of the country are likely to continue to see spikes in COVID-19 admissions through the end of this year, assuming it will take at least until then to develop, test and produce a vaccine. And that is probably an optimistic outlook. 

The second is that if the economic rebound falters in any way, the nation will likely see an increase in the number of people who are uninsured or insured by public insurance (i.e., exchange-based or Medicaid) rather than by employer-sponsored insurance. This trend would pose a challenge for hospitals because private insurance has been a source of cross-subsidy to public programs, especially Medicaid.   

Hospitals should be forewarned of such possible developments and be prepared for them.  

About the Author

Gail R. Wilensky, PhD,

is a senior fellow at Project HOPE; a former administrator of the Health Care Financing Administration, now CMS; and a former chair of the Medicare Payment Advisory Commission. 

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