The estimates of lost revenue to the nation’s hospitals in the Spring of 2020 related to elective surgeries alone range from ~$7 billion (B) to more than $40B monthly for the period between March and June 2020. With the losses incurred for other services, those for PPE, COVID-related hospitalizations and support for frontline workers, the total deficit for the Spring of 2020 may run to more than $200B.
In the wake of the pandemic, and concerning reports about the financial status of American hospitals (including one underwritten by the American Hospital Association), the news for an industry that was surviving on a 2.5% median profit margin before the pandemic arrived is somewhat troubling.
But there is light ahead, perhaps. A group of surgeons and specialists with the Perelman School of Medicine and the Leonard Davis Institute of Health Economics have issued a report that concludes that pandemic-related loss of revenue may be manageable for hospitals that choose expansion over contraction in the years ahead.
A guide to managerial decision-making regarding operational capacity with the aim of keeping US hospitals open and financially solvent, The Cost of Quarantine, is available at the Annals of Surgery. Co-authors of the report include surgeon Rachel Kelz, MD, MSCE, MBA and Chief of Surgery Ronald P. DeMatteo, MD.
The Government CARES—But it Won’t be Enough for many Hospitals
In response to the losses caused by the suspension of elective surgery in 2020, the US Dept of Health and Human Services is offering $175B in distributed funds this year via the CARES Act. But, the report's authors attest, this buffer will not be enough for many hospitals.
More than half of the general disbursement, for example, is based on Medicare fee for service (MFFS) billings, leaving hospitals that serve uninsured populations and those with high volume, low complexity cases at a disadvantage.
The remainder of the general disbursement is allocated on the basis of total receipts, a likely impediment for rural hospitals, which often have fewer financial reserves and a high percentage of Medicare, Medicaid, and uninsured patients.
Moreover, the HHS is directing targeted payments to COVID high-impact areas, a benefit that won’t help hospitals in regions with low COVID patient volume that ceased elective surgeries during the shutdown.
Responding to the Costs of the Quarantine Will Involve Action, not Retreat
An ancient maxim of sport holds that no team can win on defense alone, and this may hold true for hospitals in the years ahead. Given the dramatic losses in 2020, a seemingly prudent response for hospitals would be conservative—cutting costs, furloughing staff and reducing operations.
But this isn’t the answer, write Kelz, et al, who argue that recovery to pre-COVID supply-demand equilibrium will require a rapid increase in capacity utilization at the hospital level, particularly in hospitals where capacity is constrained.
“Rather than reducing operations and furloughing workers, aggressively pursuing marketing and investment opportunities may reduce health system risk, particularly as the handicap of pandemic-related losses is likely proportional regardless of hospital type and region.”
Assuaging patients’ pandemic-related fears will be an essential driver of post-COVID demand, the authors report, heightening the value of marketing as an important competitive tool for hospitals, particularly if patient demand is slow to return.
For hospitals who have reached a capacity ceiling, alternative strategies to increase capacity might include hiring additional staff, scheduling cases on nights and weekends, pursuing mergers/acquisitions, and accelerating infrastructure investments—all of which will reduce recover time from years to months.
Further information on the financial impact of COVID-19 on hospitals is available from the Leonard Davis Institute, who interviewed Kevin Mahoney, MBA, DBA, CEO, of Penn Medicine, and other industry officers in October 2020 on the topic.