- Federal programs have provided not-for-profit hospitals with enough cash to get them through the summer, Moody’s says.
- A cash crunch will come when repayments of Medicare loans are due in late summer.
- Congress is working on a partial fix to the problem.
Not-for-profit (NFP) hospitals — at least those stable enough to have credit ratings — are receiving enough federal assistance to maintain liquidity through the summer, a rating agency said.
Moody’s Investors Service issued a recent report (subscription required) on the NFP hospitals it rates, concluding that despite the adverse financial effects of the coronavirus and policies restricting elective procedures, hospitals will avoid a material decline in liquidity through the summer.
“Swift action by the federal government has delivered cash to hospitals, worth 20 to 30 days of cash on average,” the report states. “The cash infusion has helped the industry avoid a liquidity crunch in recent weeks.”
Cash crunch coming
However, cash-flow stress is expected “at most hospitals” as soon as August, when they will be required to begin repaying more than $100 billion in Medicare advance payments, which are effectively loans. The Medicare Accelerated and Advance Payment Program is continuing for inpatient hospital stays but was frozen for outpatient care and other settings.
Repayments start 120 days after a hospital is sent the funds and come from withheld Medicare payments for subsequent care provided to beneficiaries. HFMA estimates that by Aug. 24, Medicare will withhold 100% of allowable payments for more than 45,000 hospitals and other providers.
Hospital advocates are pushing hard for the federal government to ease or eliminate repayment over concerns hospitals will not be able to afford it as they struggle to recover their financial footing.
“Only allowing us to keep this 120 days — it’s almost like, ‘Why did you even give it to me?’” Denise Chamberlain, CFO of Edward-Elmhurst Health, a two-hospital health system in Illinois, said in an interview.
Chamberlain said her system did not feel the financial effects of the pandemic and elective surgery shutdown until 45 days in, due to the average lag time in its accounts receivables. So, the benefit of the advance payments is outweighed by the coming impact on her cash flow projections.
Nationally, hospital patient volumes declined steeply in March and April amid mass suspension of elective procedures, although signs of recovery have emerged in May. And data from the American Hospital Association projects that hospitals will lose a cumulative $202.6 billion in revenue between March 1 and June 30, for an average loss per month of $50.7 billion, mostly due to the collapse of elective procedures.
If Medicare is unable to fully recoup a hospital’s advance payments by withholding all Medicare payments for services delivered between the end of the 120-day period and one year after the loan was distributed, it will begin charging high interest.
The HEROES Act, which was passed May 15 by the U.S. House of Representatives, would lower the interest rate for the advance payments, reduce the per-claim recoupment percentage and extend the period before repayment must begin. But advocates for safety-net hospitals say the tweaks don’t go far enough.
“Relieving and extending the repayment terms for Medicare accelerated payments will help,” said Bruce Siegel, MD, president and CEO of America’s Essential Hospitals. “But the right thing to do for essential hospitals and the economy would be to forgive these payments, allowing these hospitals to remain focused on the financial needs of today, such as making payroll and purchasing scarce medical supplies and equipment.”
NFP hospital cash flow also will be affected by declines in Medicaid cash flow in states that advanced summer and fall quarterly payments to the spring
More hospital financial issues identified
The adverse financial effects of the coronavirus will weigh on hospitals' financial performance into 2021, according to Moody’s. Among the key projections:
- A number of issuers will be at risk of violating financial covenants.
- Increasing job losses and related loss of insurance coverage will weigh on the sector’s performance.
- Subsequent outbreaks of COVID-19 potentially will curtail services offered.
- Returning to pre-coronavirus patient volumes will be gradual and will vary across the country.
- The varying pace by which states and localities lift restrictions will affect hospitals' ability to ramp up nonemergency services.
- The recovery period may be lengthy due to issues with testing capacity, supplies and consumer uneasiness about accessing the healthcare system.