Column | Healthcare Business Trends

The 2021 outlook for hospitals: Reviews are mixed despite the large number of people already vaccinated in the United States

Column | Healthcare Business Trends

The 2021 outlook for hospitals: Reviews are mixed despite the large number of people already vaccinated in the United States


Few would disagree that 2020 was a challenging financial year for hospitals. Although most industry voices are predicting 2021 will also be financially challenging, not everyone holds that view.

Some voices are sounding more positive, given the availability of vaccines in most parts of the country and the substantial number of people who have already been vaccinated in the United States. As of April 26, CDC tracker data indicated 94.8 million Americans had been fully vaccinated. Although this is only 28.5% of all Americans, it represents 45% of Americans over the age 18, who up until recently were the only ones eligible to receive the vaccine..a Furthermore, 132 million have received at least one dose, and 80% of people over the age of 65 — the vast majority of those who are the most vulnerable to death or serious illness — have already been fully vaccinated.

A recent report projects U.S. hospital revenue in 2021 will fall somewhere between $53 billion and $122 billion short of where it had been prior to the pandemic.b The optimistic side of this projection is based on a recovery of patient volumes and a smooth roll-out of vaccinations leading to reduced COVID-19 hospitalizations. The most pessimistic scenario assumes an only partial recovery in patient volume and a delayed vaccine rollout, leading to additional surges of COVID-19.

Even with the high numbers of vaccine-hesitant individuals — 13% having said they will definitely not get vaccinated and 17% taking a wait-and-see attitude — so many Americans have already been vaccinated that the pessimistic scenario seems unlikely.c

Outlook for outpatient revenue

Under the optimistic scenario, 39% of U.S. hospitals are still expected to operate in the red in 2021, with rural hospitals being especially hard-hit. A projected loss of $27 billion in outpatient revenue would pose a difficult challenge, given that outpatient services provided a substantial source of pre-pandemic revenue.

Although it may seem like a distant memory, hospitals ended 2019 with an increase in profitability, helped by increased net patient revenue and service volumes. Some researchers saw a comeback for outpatient care, projecting the baseline for outpatient visits at the start of 2021 would be 5% over the volumes observed in the second half of 2019.d Researchers projected the baseline for ED visits and inpatient visits, however, would be 22% and 7% lower, respectively, on a year-over-year basis. In early 2020, the picture was quite different, when ED and outpatient visits were up by 2% and 6%, respectively.

Legislated funding helps, but further interventions needed

Despite the significant financial challenges hospitals and other providers continue to face, they also have received significant funding through legislation during the past 12 months. These funds are intended to alleviate both the revenue loss from delayed patient care and additional costs COVID-19 has imposed on providers.

Hospital spending by the end of 2020 was only 0.1% higher than it was at the end of 2019. Meanwhile, Congress provided additional protection to hospitals (along with other healthcare providers) by waiving the automatic 2% reduction in Medicare payments that was scheduled to restart in April 2020 as part of sequestration and postponing it until the end of the year.

As of mid-April 2021, $178 billion of funds have been legislated for providers, giving all types of providers grants amounting to at least 2% of their previous annual patient revenue. Distributing the funds based on each hospital’s pre-COVID-19 revenue favors hospitals that receive a higher percentage of their revenue from private insurance, because private insurance pays hospitals at higher rates than Medicare and Medicaid. Nonetheless, safety-net hospitals, hospitals with many COVID-19-afflicted patients and skilled nursing facilities, have also qualified for an additional $25 billion of funding.

Congress, however, has not exempted the required response from PAYGO rules, which have been blocked to date. These rules would require any payment increases or tax cuts that add to the national deficit be offset by spending cuts. If Congress does not proactively intervene, PAYGO would require that Medicare payments be reduced by 4% in 2022 under the American Rescue Plan. Although Congress seems likely to intervene, this point is a reminder that hospitals continue to face negative forces near term.e

CMS has attempted to assist hospitals by accelerating their advance payments. Although ultimately these funds will have to be repaid, the move provides hospitals with additional funding in the interim. To recoup what hospitals owe, Medicare will begin to withhold a portion of new Medicare claims, but the amount withheld will not exceed 25% of their revenue, at least during the first six months of repayment.

A positive outlook for some

It now seems likely that some of the largest hospitals will emerge from the pandemic generally unscathed by COVID-19. Tenet and HCA, both for-profit systems, reported higher profits in the first quarter of 2021 as a result of higher patient acuity and a rebound in ambulatory care.f  Tenet and HCA, both for-profit systems, reported higher profits in the first quarter of 2021 as a result of higher patient acuity and a rebound in ambulatory care.f

And some of the nation’s largest not-for-profit hospitals also ended up doing well, largely because of the federal bailout money.  An article in the April 1 Wall Street Journal reported that Baylor Scott & White Health laid off 1,200 employees in May 2020 but ended up in a good financial position after receiving $454 million in relief funds. By the end of 2020, Baylor had an $815 million surplus and a 7.5% operating margin.g The same article pointed to other not-for-profit health systems that ended up with surpluses after Federal bailout grants included, the Mayo Clinic, UPMC and NYU’s Langone Health. HHS’s attempts in the fall to limit how much aid hospitals could keep based on their finances was stopped by industry and the Congress.

The Biden administration has said it is reviewing programs from the Trump administration, including unspent funds from previously allocated legislation, as well as the $8.5 billion that was included in the American Rescue Act. Redirecting funding, in the face of political pressure, has never been easy. There is no reason to expect this to change because of the pandemic. 

Footnotes

a  As of May 10, the FDA has expanded eligibility to anyone over the age of 12.

b  Kaufman, Hall & Associates, LLC, COVID-19 in 2021: The potential effect on hospital revenues, February 2021. 

c  Huetteman, E., “Covid vaccine hesitancy drops among all Americans, new survey shows,” KHN, March 30, 2021.

d LaPointe, “Will hospital patient visits return to normal in 2021?” RevCycle Intelligence, January 29, 2021.  

e  Schwartz, K., and Neuman, T., “Funding for health care providers during the pandemic: an update,” Kaiser Family Foundation,  April 20, 2021.

f King, R., “Tenet posts $97M in profit in Q1 as hospitals ‘exceeded expectations,” Fierce Healthcare, April 21, 2021.

g  Rau, J., and Spolar, C., “Some of America’s wealthiest hospital systems ended up even richer, thanks to the federal bailouts,” The Washington Post, April 1, 2021.

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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