Although hospitals are preparing to care for a huge number of patients in the anticipated COVID-19 surge, that demand won't translate to more dollars for healthcare systems.
As they begin treating these more costly, higher-acuity patients and postpone more profitable elective surgeries, health systems across the country are bracing for significant financial losses.
The Ohio Hospital Association estimates a $1.2 billion negative financial impact to Ohio hospitals every month — a number expected to increase, said OHA spokesman John Palmer. For perspective, the total revenue for Ohio hospitals averages about $48 billion annually.
In addition to the cost implications of shifting away from nonessential surgeries and procedures, hospitals are grappling with increasing prices in the supply chain for the equipment they desperately need to treat COVID-19 patients. Plus, hospitals, like all businesses, are seeing effects from the volatility of the financial markets.
"The financial implications for a hospital in particular, it's the worst of all worlds, at least temporarily," said Mary Ann Freas, chief financial officer for Southwest General.
As the coronavirus outbreak highlights cash-flow constraints, Moody's in March revised the 2020 outlook for the not-for-profit hospital and healthcare sector from stable to negative, adding that the sector will likely see lower cash flow compared with last year, although it's too early for specific estimates.
The state and federal governments are working to support hospitals. For instance, Ohio Treasurer Robert Sprague launched the Variable Rate Demand Obligation (VRDO) Stabilization Program, which aims to provide added liquidity and ease the financial pressure hospitals face as they respond to the pandemic.
The $2 trillion coronavirus aid package known as the CARES Act, passed by Congress and signed by President Donald Trump in March, allows hospitals to receive an advance on expected future Medicare reimbursement and allocates $100 billion to reimburse eligible healthcare providers for related expenses or lost revenues directly attributable to COVID-19. These and other positive provisions in the act should provide liquidity support, but Moody's still expects the coronavirus to have a "significant negative impact" on hospitals' cash flow in 2020.
Freas encouraged hospitals to take advantage of the provisions in the CARES Act, as well as any flexibility they have in their lines of credit with their banking institution or flexibility with pension payments.
"We're also reaching out to our vendors," she said. "Will they either let us delay payment or reduce our costs for this period of time? And they've been receptive."
Richard Gundling, senior vice president of healthcare financial practices for the Healthcare Financial Management Association, recommended hospitals look at their revenue cycles and focus on past services where they're still owed money so they can convert receivables into cash to pay employees and buy supplies.
"It's sort of that block-and-tackling," he said. "You know, how do I make some of those assets that are owed to me into cash? How do I collect on them now? As any business would do."
Mike Szubski, University Hospitals' CFO, said the challenge for UH and many other hospitals and healthcare systems is the delay in payers reimbursing for services rendered while insurers evaluate claims. The wait is a typical reality for healthcare providers, but he suggested trying to expedite those payments given the financial pressures hospitals currently face. He pointed to one payer who reached out with a "creative idea" around potentially advancing periodic payments based on prior volumes.
"Freeing up those monies back to the providers as quickly as possible would be a tremendous benefit, especially in today's world with healthcare systems being challenged on available cash and cash flow," he said.
While all of these approaches will certainly help, Palmer said many hospitals are going to have to make decisions looking at their largest expenses, which is the labor portion, and overall operations. Some health systems in the state have implemented furloughs for administrative staff, as well as some on the clinical side for those who work in elective or nonessential surgeries and procedures, he said. Others have shut down administrative buildings to help redirect costs.
"You can cut your labor, you can keep the lights off, but, I mean, at the end of the day under this COVID/coronavirus, their whole facility is going to have to be dedicated to treating this," Palmer said. "And so it is going to be very challenging for many hospitals to navigate that."
Many of Ohio's 236 hospitals already are economically challenged, operating on tight margins and with limited cash on hand. According to OHA, 68 hospitals in the state have an operating margin below 2%, and 52 are at or below 0% operating margins.
Szubski said he's confident that UH's strong financial foundation, including a conservative asset-allocation policy for its investment portfolio and a great relationship with banking partners from which the system has accessed capital during this process, will help it weather the challenges.
"There are hospitals around the country that are really struggling right now to stay open," he noted. "Thankfully, we're not in that situation, but that's not to say that there aren't pressures that are being put upon us."
After the crisis, hospitals will have to quickly switch gears to accommodate all the many delayed procedures and surgeries that will be rescheduled. A patient can wait a few months for a total knee replacement but will likely come back. The question is balancing the expenses hospitals face now with the wait for those patients to return, Gundling said.
J.B. Silvers, a healthcare finance professor at Case Western Reserve University, said he expects that, collectively, the country will do whatever is needed to keep hospitals in business during the crisis.
"The real question is what will that mean in terms of their accounting profits and their margins and their bond requirements in the long term, from an accounting point of view," he said. "So you can keep somebody going by funneling more cash into them, but if at the end of the day, they violated their bond covenants and they show major losses, accounting losses, then they're going to have to live with that over the long term."
"Ohio hospitals are prepping for big financial losses in pandemic" originally appeared in Crain's Cleveland Business.