Hospitals have long warned their finances would be ravaged by the coronavirus pandemic, but new research from the Medicare Payment Advisory Commission suggests those dire forecasts didn’t really pan out, as federal subsidies offset the worst of COVID-19’s financial effects.
The American Hospital Association estimated the pandemic would reduce U.S. hospital operating profits by almost $51 billion in April, the month with the sharpest decline in patient volume. But MedPAC researchers estimate hospitals only lost about half that: between $20 billion and $30 billion that month.
And grants from the Coronavirus Aid, Relief and Economic Security Act, designed to supplement lost revenue and bolster providers to combat the virus, covered short-term losses for most facilities. The grants, along with other beneficial payment changes, caused a net $91.8 billion to flow to hospitals, vaulting some facilities to extraordinarily high income in the second quarter.
On average, the grants alone could support hospitals for three to five months of April-level losses, and even longer for community access and rural facilities, MedPAC said in a report released Thursday at the group’s regular meeting.
However, some MedPAC commissioners — many coming from health system backgrounds — were quick to note the findings don’t take geographic variation and COVID-19 caseload into account. As the novel coronavirus shows no sign of slowing down, some individual hospitals — especially small, cash-strapped rural facilities — continue to plead for aid.
A key priority for the industry is getting CMS to delay or cancel recoupment of advanced Medicare payments to providers, loans that became due for the earliest borrowers in late July. The agency may be holding off, with major hospital groups reporting it hasn’t yet begun garnishing facilities’ fee-for-service Medicare reimbursements to make back the loans. Provider lobbies also want Congress and the Trump administration to restart the program, which issued some $100 billion in loans before closing late April, and lower interest rates, which can be as high as 10%.
Commissioners at Thursday’s meeting commended the administration for the speed of getting loans and grants out the door to providers, but said it was time for an in-depth review to make sure the money went to where it was needed most.
“I do hope we spend time developing a reconciliation process to find it went to the right places and was targeted,” Brian DeBusk, CEO of medical manufacturer DeRoyal Industries, said. The administration has faced significant backlash for its reimbursement strategy, with behemoth for-profit operators and nonprofit systems with huge cash reserves nabbing the lion’s share of $175 billion in CARES bailout funds.
And despite widespread hospital warnings, second quarter earnings results yielded a more nuanced picture. Some operators reported flatlining admissions tanking revenue and income, while others reported historic profits bolstered by the recovering market, federal dollars and cost-cutting measures.
A sample of hospitals analyzed by MedPAC suggests for-profit operators were much more successful at reducing costs than their nonprofit peers in that pivotal second quarter.
MedPAC looked at three large nonprofits and four large for-profit systems that together represent about a 10th of all U.S. hospital revenue. The nonprofits lost an aggregate of almost $1.6 billion in patient revenue, while the for-profits lost almost $3.6 billion: a 17% and 15% percent reduction from the prior year quarter, respectively.
However, the nonprofits only cut operating expenses by $65 million, while the for-profits cut $2.3 billion. As a percentage of revenue decline, that’s a 4% dip in expenses for the nonprofits, compared to an almost 65% decline for the for-profits, resulting in operating profit margins of -13% to 5% for the nonprofits, and 1% to 14% for the for-profits.
Yet “many of the cost-cutting initiatives aren’t sustainable,” Jonathan Perlin, CMO and president of clinical services at for-profit giant HCA Healthcare, said, arguing hospitals that survive the pandemic will be “very financially damaged and unstable.”
For example, health systems laid off or furloughed thousands of employees as they grappled with lowered revenue, and before congressional aid was assured. Workers on all rungs of the executive ladder have taken pay cuts or seen their benefits constricted to free up cash.
Nonprofits, which usually have a more stable balance sheet and more investments than their for-profit counterparts, could have seen less need to make those calls. Commissioners asked MedPAC researchers to dig more into the nature of the cost savings before the advisory group’s March report to Congress.
Some noted their surprise at major health systems’ relatively rosy second quarters, even as hospitals continue to clamor for aid. AHA and other lobbies are asking for another $100 billion in congressional funds in the next COVID-19 relief package, currently stalled in Congress.
And some commissioners questioned whether billions in CARES funding should have been reprioritized, given the findings and that many other providers, especially fee-for-service physician practices, are tottering close to the edge of financial collapse.
“It’s striking that revenues looked pretty good. Much, much, much less money was shoveled out to physicians, whose revenue probably wasn’t so good,” Larry Casalino, who runs the health policy department at the Weill Cornell Department of Healthcare Policy and Research, said. “I can think about a lot of reasons why that occurred, some of them good reasons, and some of them bad.”