Ohio-based Bon Secours Mercy Health said it projects operating losses of $100 million per month, forcing it to freeze wages and furlough employees. The Connecticut Children's Medical Center, which furloughed 400 workers for 60 days, said declining patient volumes have cost the provider $7.5 million to $9 million per month.
While it didn't disclose the effects on its revenue, Prisma Health, the largest not-for-profit health system in South Carolina, said its patient volume decreased 77% while outpatient visits decreased 40% in just two weeks. That, and staggering price increases for personal protective equipment prompted it to furlough some administrative employees.
For-profit chains are not immune either. Tenet Healthcare Corp. announced it was scrapping its 2020 guidance, furloughing about 500 full-time positions and issuing another $500 million in debt to boost liquidity.
Rational hospital operators would first reduce the hours of part-time and as-needed employees, then look to cut pay or workdays for the full-time and salaried workers, said Dr. Mike Schatzlein, former CEO of Ascension's St. Thomas Health. Furloughs would be used as a last resort, and ideally, executives would share in the pain by taking a pay cut, he said.
At HCA Healthcare, which ended 2019 with revenue totaling $51.3 billion, members of the senior leadership team each will take a 30% cut in pay until the pandemic is over.
"The last thing they want to do is lose good associates," Schatzlein said, but ultimately, "you can't let the whole institution die because of consideration for associates."
Employee benefits lawyers are inundated with calls from healthcare companies trying to figure out how to manage their workforces through the pandemic. Mimi Moore, a partner at law firm Bryan Cave Leighton Paisner, said providers are generally attempting to reassign clinicians to different areas with greater need.
While some are furloughing employees with an eye toward bringing them back, very few are laying off their workers because most believe they will soon be needed again, she said. That differs from other industries, where Moore said she's seeing lots of layoffs. By and large employers are preserving workers' health benefits while they are on furlough, but there are cases where their health insurers won't permit it.
Mark Peters, a partner at law firm Waller Lansden Dortch & Davis, said most of the furloughs he's seeing are on the ancillary side of the industry—dental offices, dermatology, and physical therapy, for example. "They simply don't have the cash reserves to continue to pay people to come to work when there literally is no work to do," Peters said.
Long term, providers who furlough staff risk losing them to competitors and having to spend more money later on recruiting or temporary staffing, McMillan said. Furloughs and pay cuts could deter students from taking a career in healthcare, creating future workforce issues. But drawing on cash reserves to continue paying non-essential employees could also increase providers' borrowing costs, making it harder for them to get needed capital for technology or other investments.
Some hospitals recognize the risks and are easing anxiety by providing stability and certainty for employees. Pittsburgh-based health system UPMC ensured its staff they would continue to be paid at their current rate for normally scheduled hours through May 9, even if they are redeployed to different roles or asked not to work.
"Our communities expect that we're going to be there for them and respond. We are asking our employees to be there for the community, so this is a way to be there for our employees," said John Galley, UPMC's chief human resources officer.
It's not totally clear why UPMC is able to protect pay while other systems are resorting to furloughs. The system's culture may play into it. UPMC is also a very large integrated system with diversified revenue from its health plan and access to cash. It sought a line of credit and several bank loans totaling $2 billion in response to the pandemic, according to rating agency S&P Global. UPMC also had $5.1 billion in unrestricted cash and investments at the end of 2019. An S&P report shows the median for unrestricted reserves among not-for-profit health systems was $1.5 billion in 2018.
Even so, UPMC will be squeezed by COVID-19 just like the rest of the industry. S&P in late March revised the sector's outlook to negative from stable, noting the COVID-19 pandemic could lead to higher operating costs and declines in reserves.
The Coronavirus Aid, Relief, and Economic Security, or CARES, Act, signed into law last month will funnel $100 billion to hospitals to help with costs and lost revenue from the pandemic. The American Hospital Association has asked the federal government to quickly distribute the funds directly to providers and allow it to be used for paid leave for quarantined or furloughed staff. Hospitals will need to track how they spend the funds so they aren't clawed back later for being improperly used, experts said.
The AHA is also begging the largest private health insurers to provide advance payments to insurers because Congress and the federal administration's "actions alone cannot fill the gap resulting from reduced revenue from private insurance," it wrote in a letter to insurer CEOs. Medicare has allowed providers to receive advance payments, and at least one commercial insurer—Blue Cross of Idaho—is giving independent physicians the option.
Schatzlein said resolving the shortage of masks and gloves along with implementing widespread diagnostic testing for COVID-19 should allow health systems to return to normal operations. Testing, which has so far been limited, would help providers predict when the pandemic will peak in their counties so they can plan around it instead of postponing elective procedures indefinitely. Ventilators would be moved to areas experiencing a surge in cases and local hospitals would flex up staffing, he said.
"We've got to get good at doing this," Schatzlein said. "The issue is not: How do we live with no elective procedures for six months? We need to get to a county-by-county strategy."