Monday, June 29, 2020

Hospital Profitability in America - An Unanticipated Consequence of the COVID-19 Pandemic

While those of us who live in advanced economies were told about the necessity of locking down during the COVID era to flatten the curve, thereby spreading out the disease and allowing the health care system to handle the massive influx of critically ill patients.  One might have thought that the influx of patients would lead to a financial windfall for the American hospital and for-profit health care system, however, a recent analysis by the American Hospital Association (AHA) would suggest otherwise.


AHA's analysis opens with this:


"America’s hospitals and health systems have stepped up in heroic and unprecedented ways to meet the challenges of COVID-19. As outbreaks have occurred across the country infecting more than 1 million people, hospitals have ramped up testing efforts and are treating hundreds of thousands of Americans in an effort to save lives and minimize the virus’ spread.1 This includes establishing testing tents, adding general and intensive care unit (ICU) bed capacity, and developing COVID-19 units to isolate and treat patients with the disease while safeguarding the health of other patients and hospital staff."


It goes on to note that the financial challenges faced by America's health care system have been historic thanks to the massive demand for medical equipment and supplies and disrupted supply chains which have led to increased treatment costs.  As well, frontline medical workers in heavily infected areas are being supported by their employers who have been providing them with child care, housing and transportation in some cases.


The AHA looked at the following;


1.) the impact of COVID-19 on hospital and health services costs.


2.) the effect of cancelled non-emergency services due to COVID-19 on hospital revenue.


3.) the impact of additional costs associated with purchasing and supplying personal protective equipment for hospital and health care staff.


4.) the cost of additional support being provided to health care workers.


Thanks to the cancellation of non-emergency services, and fewer visits to primary care and specialty care physicians, the number of inpatient and outpatient services has decreased by 13 percent from the previous year.  This has had a significant negative impact on hospital revenues. 


The AHA found the following:


1.) hospitals and health services have a net negative financial impact of $36.6 billion over the period from March to June 2020 including payments from COVID-19 patients.


2.) total revenue losses due to cancelled hospital services was $161.4 billion over the period from March to June 2020.


3.) additional costs associated with purchasing personal protective equipment totalled $2.4 billion over the period from March to June 2020.  This works out to roughly $600 million per month.


4.) cost of additional support to health care workers will total $2.2 billion over the period from March to June 2020.  This works out to roughly $550 million per month.


In addition, hospitals have experienced higher drug costs during the pandemic because of shortages related to broken pharmaceutical supply chains, higher wage and labor costs because of health care worker shortages and bonus pay schemes and additional costs for equipment like ventilators, ICU beds, COVID-19 testing tents among others.

Let's close with this information.  According to Becker's Hospital CFO Report, so far this year (between January 1, 2020 and June 22, 2020), 42 U.S. hospitals have closed or entered bankruptcy.  Here are some example of provider organizations which operate a combined 42 hospitals that have filed for bankruptcy or closed so far this year:

Our Lady of Bellefonte Hospital in Ashland, KY

Williamson Hospital in West Virginia

Decatur County General Hospital in Parsons, TN

Quorum Health in Brentwood, TN

UMPC Susquehanna Sunbury in Pennsylvania

Fairmont Regional Medical Center in West Virginia

Sumner Community Hospital in Welling, KS

Medical Center at Elizabeth Place in Dayton, OH

Mayo Clinic Health System in Springfield, MN

St. Vincent Medical Center in Los Angeles, CA


The American Hospital Association study concludes the following:


"Hospitals face catastrophic financial challenges in light of the COVID-19 pandemic. The AHA estimates a total four- month financial impact of $202.6 billion in losses for America’s hospitals and health systems, or an average of $50.7 billion per month."

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