Not-for-profit hospitals will feel the financial impact of the COVID-19 long after the pandemic subsides, according to a new report.
A myriad of short- and long-term factors will buffet hospitals as they scramble to deal with a surge of patients infected with COVID-19, Moody's Investors Service analysts project as they adjust not-for-profits' outlook from stable to negative.
More hospitals are canceling profitable elective surgeries to make way for costly COVID-19 patients as they manage higher staffing and supply costs. They will likely treat more unemployed individuals and suffer investment losses, which will have lasting long-term consequences, analysts said. Moody's had projected 2% to 3% increased cash flow in 2020 and now expects cash flow declines as the number of cases spike.
"We should see some containment of the outbreak in the second half of 2020 along with a gradually recovering economy," Diana Lee, vice president at Moody's, said in prepared remarks. "However, there is a high degree of uncertainty and the risk that the outbreak will be prolonged and the economic fallout will be more severe is elevated." Larger health systems will typically weather the storm better than their smaller peers, she added.
The CMS announced on Wednesday that non-essential procedures should be delayed until the COVID-19 pandemic ends. Many hospitals had already delayed elective surgeries, which tend to be some of hospitals' highest-margin procedures. Currently, there is no Medicare inpatient diagnosis-related group for COVID-19 and many admitted patients will require resource-intensive ICU treatment, analysts note.
Beaumont Health, a $5 billion, eight-hospital system based in Southfield, Mich, may suffer a $1 to $2 billion hit in annual revenue as it cuts most surgeries and related procedures to brace for COVID-19 patients, CEO John Fox said.
"The 20% to 40% drop in our revenue can in no way be absorbed by our 4% operating margin and cash reserves," he said in prepared remarks.
The rising price of temporary staff is another headwind. Average weekly pay for registered nurses has nearly doubled from $1,700 in January to more than $3,000 in March, according to a new report from NurseFly, which offers software that helps match nurses with providers. Crisis pay rates have jumped to more than $4,400 per week.
Staffing at intensive care units, emergency departments and nurses who specialize in infection control are seeing the highest demand. Pay for ED nurses has nearly quadrupled while pay for infection-control positions has doubled, according to NurseFly data.
Massachusetts has seen demand for RNs increase more than four-fold while demand in Washington has tripled. Demand for RNs has doubled in New York, California and New Jersey.
"We have filled nearly 100 critical roles in Washington, as well as Arizona, California and Colorado, and more are on the way," Mona Veiseh, president of NuWest Healthcare, a NurseFly staffing agency partner in Bellevue, Wash., said in prepared remarks.
Similarly, staffing agency Nomad Health has recently seen demand double and pay rates triple, CEO Dr. Alexi Nazem said. The HHS and individual states have relaxed licensure requirements for physicians and nurses who look to practice in different states, which has helped, he said. The Trump administration also temporarily expanded telehealth services for Medicare patients.
"Hospitals have been reaching out to prepare for the onslaught of patients they are expecting," Nazem said.
Authorities should relax regulations for hospital workers regarding annual physicals, CPR certification, background checks and other requirements amid the pandemic, he recommended.
Meanwhile, many hospitals are reporting shortages of masks and other protective equipment for their staff.
Healthcare distributors have placed more than 700 personalized protective equipment items on allocation due to COVID-19, which restricts ordering when demand spikes to prevent unnecessary hoarding, according to Premier, a consulting and group purchasing organization.
In response, the Trump administration aims to stimulate U.S. production of masks and other critical medical supplies and devices through the Defense Production Act.
Ventilators, a machine that helps patients breathe, are on 90- to 180-day backorder, said Tom Derrick, co-founder and senior vice president of OpenMarkets, which helps hospitals source equipment.
But contrary to some reports, health systems are not turning down ventilators due to price, he said. Medtronic has "COVID-19 Pandemic Pricing" on its ventilator orders, which increased unit costs by about 5%.
Average prices for new machines are around $23,000 and $7,000 to $9,000 for refurbished units, according to OpenMarkets data.
"Large and small health systems are scouring the secondary market for older models and refurbished units," Derrick said. Supply is running out quickly, he added.
But higher staffing and supply costs probably aren't hospitals' biggest obstacles, Nazem said. Reducing profitable elective surgeries will put a tremendous amount of pressure on hospitals, particularly those that don't have much cash on hand, he said.
Not-for-profits' median operating margin was 1.8% in 2018, according to Moody's data. They had 201 days cash on hand in 2018, Moody's said in a previous report, noting that Medicaid disproportionate share hospital payment delays and Medicare reimbursement rate increases were expected to boost hospitals' finances.
"Many have slim or negative operating margins with only a couple months of cash on hand and they are going to rapidly go through that," Nazem said. "Unless there is a massive injection of liquidity from federal and state governments, we could see a devastating long-term effect on hospitals."
There have been two federal COVID-19 relief bills that have largely indirectly subsidized hospitals through state and local agencies. Community health centers are expected to get some direct funding, while hospitals have also benefited from increased federal Medicaid funding.
While two more bills are in the works, hospitals are still unsure when or how federal COVID-19 funding will come.
"If the federal government is contemplating bailing out the airline industry, it should seriously consider funding hospitals, which are on the front lines of this pandemic," Nazem said.