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News | Coronavirus

Slow financial recovery expected for hospitals after COVID-19 pandemic

News | Coronavirus

Slow financial recovery expected for hospitals after COVID-19 pandemic

  • After rapid and historic losses, hospital revenues are expected to recover more slowly.
  • Hospitals have widely differed in their restart of elective procedures, industry observers say.
  • Additional revenue opportunities include expanded use of telehealth.

Hospital finances are unlikely to have the type of sharp, V-shaped recovery that some are expecting for the wider economy in the second half of the year, hospital executives and industry advisers say.

One projection of a slow recovery is the view of 89% of 174 hospital and health system executives that their organizations’ revenues will be lower at the end of 2020 compared with pre-pandemic levels, according to an HFMA survey analyzed by Guidehouse. Almost two-thirds of respondents projected revenues will decrease by more than 15%, and one-fifth forecast decreases of more than 30%.

U.S. hospitals and health systems already are projected to lose $202.6 billion over four months of the spring and early summer, according to recent estimates by the American Hospital Association (AHA).

Actual April losses among the more than 800 hospitals included in Kaufman Hall’s latest monthly finance tracking report were described as “devastating.” Specific April findings included:

  • 174% decline year-over-year in operating EBITDA margins
  • 118% decline from March in operating EBITDA margins
  •  282% decline year-over-year in operating margins
  • 120% decline from March in operating margins
  • -29% median hospital operating margins

“April was the worst month ever for hospital finances,” Jim Blake, a managing director for Kaufman Hall, said in a release. “Our nation’s hospitals are in a perilous position. They are serving as the frontlines of our battle against this virus, but the pandemic is threatening their fundamental financial viability at a time when we need them most. The road to recovery will be difficult, and our healthcare system will be forever changed.”

The expectation of a slow bounce-back in hospital revenues was echoed in a recent not-for-profit hospital debt-investor call by Fitch Ratings.

Hospital revenue faces “a significant hit in 2020 and a rebound — not all the way — in 2021 and then sort of back to normal in those out years,” Kevin Holloran, senior director of the not-for-profit hospital group for Fitch, said on the call.

And any 2020 revenue recovery could be endangered by a potential second wave of coronavirus in the fall or early winter, industry watchers say.

How revenue will recover

Industry advisers expect the ongoing limited restart of elective procedures to help hospitals turn around their finances. The loss of those procedures due to voluntary and mandatory suspension of services drove 80% of the revenue losses identified by AHA.

But views differ on how extensive the restart has been. For instance, Holloran said initial restarts of elective procedures among Fitch’s rated hospitals beat the company’s expectations.

“Most of our issues acknowledge that this is not an immediate light switch, or a V-shaped recovery; they certainly expect it to be more U-shaped, and they are plotting for that, but right out of the gate it came up a little bit better” than expected, Holloran said.

But Dan Schulte, senior vice president for healthcare operations with HGS Healthcare, said his review of finances among hospital and health system revenue cycle management clients has not shown a volume increase in ambulatory surgery or urgent care. As a leading indicator, patient registrations and health plan authorization requests among those hospitals remain two-thirds lower than their pre-pandemic levels.

“Right now, it’s bare minimums,” Schulte said in a May 27 interview.

How else to grow and protect revenues?

The leading option hospitals are looking at to grow revenues right now, according to the HFMA survey, is the use of “digital strategies,” such as telehealth and contact centers. Such strategies are being pursued by 71% of respondents.

Schulte expects a vast increase in the use of telehealth services by hospitals and health systems, which will carry its own challenges, such as the need to get rid of costly brick-and-mortar infrastructure to offset lower health plan payments for remote services.

Other leading revenue options hospitals are pursuing include:

  •  66% using service line strategies, such as growing core businesses and exiting losing businesses
  • 57% pursuing revenue cycle improvement, such as enhancing accounts receivable collections
  • 39% pursuing payer-rate negotiations

Schulte recommended that hospital finance leaders also enter discussions with health plans to agree on common protocols for determining qualifying billed charges, to eliminate appeals costs that hospitals can ill afford at this point.

Other revenue-saving steps he advised:

  • Urging health plans to take on collection of all out-of-pocket costs
  • Moving to artificial intelligence and remote process automation to increase revenue cycle efficiency

“It’s a brutal wake-up call that says, ‘If you haven’t figured out how to engage technology as much as you can, now is the time,’” Schulte said.


About the Author

Rich Daly, HFMA senior writer and editor,

is based in the Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare


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