"Paying these loans back and maintaining financial viability is going to be next to impossible for many of these facilities," said Topchik, who expects to see bankruptcies and closures. "We have seen the writing on the wall with rural hospital closures and service-line degradation in the obstetrics and general surgery deserts. Services have been cut to the bone; I don't think there is a lot of fat left to trim."
"The last thing we want to see during a pandemic is a community hospital closing," Shields said.
Berlin, Mary.-based Atlantic General Hospital and Health System is a rural system that has been able to stash around $22.2 million of accelerated payments. The loans helped shore up cash liquidity, in addition to its expanded credit line, said Cheryl Nottingham, chief financial officer at Atlantic General.
In 2019, the system ended the year with 60 days cash on hand; that improved to 143 this year. The only circumstance that would require Atlantic General to spend its accelerated payments is if its cash flows dropped enough to potentially violate its bond covenant, she said.
"Our first wish would be forgiveness of the loans," Nottingham said, adding that was unlikely. "Extending recoupment to the end of the calendar year would be helpful—the second-best option would be any reduction in the interest rate."
Similarly, the Federation of American Hospitals have asked CMS to extend the repayment period, waive or limit interest rates, and increase the amount hospitals can receive in advance. The association also lobbied for allocating the funds from general Treasury revenues rather than the Medicare Hospital Insurance Fund, authorizing loan forgiveness in case of hardship and reducing the amount of repayment taken from each Medicare claim from 100% to 25%.
Some states, including those that expanded Medicaid, aren't feeling the pressure as acutely. Maryland is relatively unique because of its global budget system, which offers a lot of "different hydraulics at the federal and state government to try to maintain liquidity of hospitals in crises periods," Atlantic General CEO Michael Franklin said.
Atlantic General had to furlough about 20% of its full-time staff, which have since returned to work, pause capital projects, add capacity and boost its telehealth offerings.
"We were fortunate because we are a relatively small hospital and can get things done more quickly," Franklin said. "Because we are in a more rural area, the demand and impact of COVID has been a bit more delayed, allowing us prepare and adapt."
As the American Hospital Association claims that U.S. median operating margins could sink to negative 7% without additional support, some large systems have reported massive profits in the second quarter after cutiting expenses and securing federal funding.
Franklin, Tenn.-based hospital chain Community Health Systems had $1.71 billion cash flow from operations as of the end of the second quarter, stemming from $564 million in CARES Act grants and $1.2 billion of Medicare accelerated payments. That was up from $265 million in cash flow year over year. CHS recorded a $70 million net income attributable to shareholders in the second quarter.
Dallas-based Tenet Healthcare Corp. has received about $1.5 billion in Medicare advance payments. The hospital chain boosted its profit 200% during the second quarter.
One of Mark Armstrong's coworkers at consultancy LBMC said his clients are more flush with cash than he'd ever seen. But Armstrong, a shareholder at the firm, isn't seeing that amongst his clients.
"People I am talking with are all across the board," he said. "Some haven't spent a penny. Others that already had deferred accounts payable and were scrambling to make payroll before the pandemic don't have the money to payback the loans."
For the latter, this could be a tipping point that pushes providers to partner or merge with larger organizations, rework their clinical services or liquidate some ancillary assets, Armstrong said.
"Service lines that are boutique or aren't managed well can be a cash drain on an organization, and organizations have to evaluate whether to continue to do that anymore," said Armstrong, noting that is particularly prevalent in rural communities.
The Maine Hospital Association said that extending repayment time frame would allow its hospitals to appropriately adapt to future COVID-19 waves, communications director Becky Schnur said.
Whether Maine hospitals will be able repay the loans on time under the current framework, "We'll see," she said. "It all depends on what happens with the virus—will we be in lockdown again in November?"