Many U.S. Hospitals Already In the Red—Then COVID-19 Hit
COVID-19 has created a financial crisis for many U.S. hospitals, with no easy way out.
The math is simple: During the pandemic, hospitals lost a huge source of revenue from elective surgeries while experiencing a dramatic uptick in costs, as facilities purchase more gear to cope with the surge of infected patients, some of whom are uninsured. “They are increasing unanticipated costs and decreasing any revenue you have to offset it,” said Halee Fischer-Wright, MD, MMM, the president and CEO of the Medical Group Management Association, one of the marquis health care associations in the United States. “I think this is the definition of the perfect storm.”
Although the federal government has taken some early actions to flood the health care system with financial relief, experts worry about the long term.
“No hospital is going to come through this unscathed,” said Jacqueline Barton True, MSW, MPH, the vice president of rural health programs at the Washington State Hospital Association. “I have a lot of concern about our ability to weather this, and what we look like on the other side. I think it is very possible that without significant help from the federal government, there will be closures.”
Even before COVID-19 hit, many hospitals were struggling, particularly those in rural areas. According to a February 2020 report from the Chartis Center for Rural Health, 19 rural hospitals had to shut their doors in 2019, the largest number of closures in a year since tracking began in 2010 (Figure 1). The analysis identified more than 450 additional facilities in rural areas that are at risk for closure.1
One of the hardest-hit states is Texas, where 20 rural hospitals have been forced to shut down since 2010, and 50% of the remaining facilities are vulnerable to closure, according to the Chartis report. Thankfully, small and rural facilities in the state haven’t been hit by a surge of COVID-19 patients and some elective surgeries are starting to resume,2 but they lost a huge source of income from the prolonged pause on those procedures, as well as the usual influx of post-acute care from larger urban facilities, according to Nancy Dickey, MD, the executive director of the Texas A&M Rural and Community Health Institute. “Many rural facilities are, in fact, extraordinarily challenged right now,” she told OR Management News.
Caring for patients in rural areas is often more challenging because they are generally older, have a lower socioeconomic status, and have more chronic diseases than people living in urban areas, according to a report from the Kaiser Family Foundation.3 What’s more, they are more likely to be uninsured,4 and that disparity will likely increase, Dr. Dickey said. “When people lose their jobs, they tend to lose their health insurance. So the number of people who are uninsured is probably going to go up across the country.”
“What we’re seeing now in this crisis is that 50% of our rural health care centers were already operating in the red. This is probably the thing that’s going to push them to close,” Dr. Fischer-Wright said.
Even larger urban facilities are struggling, said Kerry McKean Kelly, the vice president of communications and member services at the New Jersey Hospital Association. Northern New Jersey has been a “true hot spot” in the nation for COVID-19 patients, and unexpected costs have risen substantially, as hospitals struggle to purchase more—and more expensive—personal protective equipment and add per-diem staff. “Both of those line items have increased significantly,” she noted. Although there now is a billing code for COVID-19, “I don’t think anybody fully understands reimbursement for those patients,” Ms. Kelly said. “Right now, hospitals are just providing the care.”
According to one estimate, each infection results in a median of $3,045 direct medical costs (Health Aff 2020 Apr 23. [Epub ahead of print]. doi: 10.1377/hlthaff.2020.00426); another suggests the cost of hospitalization to private insurers could reach $20,0005 (Figure 2).
The larger the hospital, the more likely it is to survive the pandemic, as well as any other waves of cases that appear in the coming months, as stay-at-home orders begin to ease, Dr. Fischer-Wright said. Large facilities likely have bigger cash reserves, and can sell off assets or redistribute costs in a way that isn’t possible at small hospitals, many of which only keep 45 days of cash on hand, she said. “And that is not enough to get through this crisis.”
Some Help, but Not Enough?
By the end of April, hospitals were starting to get some relief from the federal government. Starting April 10, hospitals and other providers fighting the pandemic began receiving $30 billion, 30% of the total amount allocated under the $2.2 trillion coronavirus relief bill, to provide them with an immediate influx of cash. To calculate the payments, Congress considered Medicare payments and gave each hospital its portion of that total. (Medicare reimbursements for 2019 were an estimated $484 billion; if a hospital represented 0.5% of all billings, it would receive 0.5% of $484 billion.6) More recently on April 23, the government passed an additional $484 billion bill, which includes $75 billion for hospitals.7
However, Medicare payments are typically half of what providers rece ive from private insurance. The formula for the first round of payments under the bill also disadvantaged small and rural hospitals, which don’t have the same volume of Medicare patients as larger facilities but still have fixed costs, Ms. True said. One hospital in Washington state told her the funding they received only covered six days of operation. “It was good to get the cash, but it isn’t enough.” The first round of funding also didn’t take into consideration a state’s burden of COVID-19 patients, Ms. Kelly said. New Jersey has the second-highest case count in the nation,8 and the payment formula applied equally to the state with the lowest case count.
The rest of the funding allocated to health providers by the end of April—the remaining $70 billion in the bill and the $75 billion from the second bill—aims to help fill the gaps in coverage, focusing for instance on hard-hit areas, uninsured patients and rural areas,6 but the larger goal of the bailout should be finding ways to make hospitals “whole” enough to survive the crisis over the long term, Ms. True said. “These initial rounds of funding provided just enough to help hospitals limp along. But if each one is just barely making it, what does that do to our viability as a health system and our ability to respond to a future crisis? That’s the concern.”
Dr. Fischer-Wright agreed. “The federal support during the initial weeks of the pandemic is certainly laudable, but it will need to continue throughout the remainder of and beyond the pandemic to help our nation’s providers recover and meet patient needs.”
“I’m hoping the urgency of the pandemic may help hospitals look at health care as a system, rather than a silo,” Dr. Dickey told OR Management News. “We need to be better at saying this part of your care can be done at hospital A, and then your rehabilitation or post-acute care can be done at hospital B.” For instance, larger tertiary centers could get patients through the worst of COVID-19, then transfer them to smaller facilities once their needs diminish, but they still need hospital convalescence time. This would free up space at larger facilities and provide smaller hospitals with sources of revenue.
“If we can demonstrate the importance of working together during the pandemic, you may be able to carry it forward when the worst is over,” she said. “There is a possibility that post-pandemic we can take a deep breath and say we’ve learned some lessons that can be useful down the road.”
Disclosures: None of the sources reported any relevant financial conflicts of interest.