COVID-19 and Hospital Financial Performance
August 31st, 2020
KaufmanHall, a consulting services and software provider to 80 of the 100 largest health systems in the United States, recently published an article entitled, “The Effect of COVID-19 on Hospital Financial Health.” “For any organization, a positive operating margin is essential for long-term survival. Few organizations can maintain themselves for an extended period when total expenses are greater than total revenues. For hospitals, positive financial margins allow them to invest in new facilities, treatments, and technologies to better care for patients, and to build reserves to meet unexpected expenses or revenue shortfalls.” Not surprisingly, COVID-19 has had deleterious impact on the financial performance of hospitals across the nation. Early in the course of the pandemic, this author attended a webinar presented by a major metropolitan hospital chain where it was said that the organization had expended $50 million to prepare for the treatment of a potentially overwhelming onslaught of patients. Because the state in which that hospital chain is located adopted relatively strict and early closings, the onslaught of patients never materialized. At the same time, the hospital chain mostly suspended elective procedures. Not a recipe for good financial performance.
KaufmanHall reports, “COVID-19 has created immediate and significant damage to hospital margins, as well as great uncertainty about the path forward toward financial stability. Funding from the CARES Act distributed in April and May—along with estimated distribution in June—is mitigating that impact to a certain degree. Median margins are forecast to drop to –3% in the second quarter of 2020; however, those margins would have been –15% without CARES Act funding. Our forecast shows that, without further government support, margins could sink to –7% in the second half of 2020. This is an unsustainable level for America’s hospitals. … In the most optimistic scenario, median margins could be –1% by the fourth quarter of the year. In a less optimistic scenario, margins could sink to –11%.”
“The American Hospital Association (AHA) is projecting hospital financial losses to deepen by an additional $120.5 billion from July 2020 through December 2020, bringing total losses to at least $323.1 billion for the year. Previous estimates from the hospital association showed hospitals losing $202.6 between March 2020 and June 2020 due to coronavirus-related expenses, including COVID-19 hospitalizations, net revenue losses from canceled surgeries and other services, additional costs associated with purchasing personal protective equipment (PPE), and additional support for frontline workers.”
The impact upon an individual hospital is illustrated by Kaweah Delta, a Visalia, California hospital whose CEO stated, “We are caring for patients who require a higher level of care and who are hospitalized longer. However, in the majority of cases, we do not receive full payment for the costs associated with caring for them (nursing care, supplies, drugs, oxygen, respiratory therapy, housekeeping, laundry, linen, etc.). In Tulare County, the majority of our population is covered by Medicare or Medi-Cal, and both pay hospitals a fixed price per COVID patient whether they are hospitalized for one or 15 days. Respiratory patients with COVID-19 are staying in the hospital an average of 11.2 days at an average cost of $32,300. While Medicare pays us $18,700 for this patient (an increase of 20 percent), Medi-Cal’s reimbursement remains unchanged, and our hospital takes the hit. We have had to shut down services, and cancel surgeries, procedures and other important lines of business, which contribute to our bottom line and our ability to provide services to our community. Between March 1, 2020 and June 30, 2020, we incurred a cumulative operating loss (revenues minus expenses) of $31.7 million, overwhelmingly attributable to the loss of revenue associated with these shuttered services and the losses incurred taking care of COVID-19 patients. We have received federal stimulus funds, but they fall far short of the losses we have incurred taking care of COVID-19 patients and closing services to create surge capacity. To date, we have received $14.4 million in federal stimulus funds through the CARES Act, which reduced our final fiscal year operating loss to $17.4 million. We also recently received $10.9 million in federal stimulus funds to further help cover our losses and those we expect to experience over the balance of the summer.”
The U.S. Senate is in summer recess and political uncertainty abounds as we approach the presidential election in November. Yes, there is likely to be further federal support for hospitals, but as in the past, it is unlikely to fully cover the costs of COVID-19. One can only expect that hospitals will more aggressively look to recover on balance billing and out-of-network charges.
 Jacqueline LaPointe, “AHA Projects $323B in COVID-19 Hospital Financial Losses in 2020,” https://revcycleintelligence.com/news/aha-projects-323b-in-covid-19-hospital-financial-losses-in-2020.
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