April 15, 2020

From what we’re told by certain medical experts, we are nearing the peak of the national health emergency (NHE) brought on by the coronavirus (COVID) outbreak in the United States. All across the nation, Americans are being tested and temperatures are being taken in an attempt to gauge the health of our citizenry. What this article seeks to explore is the overall health of our hospitals. How are they faring? The fact is the COVID crisis is negatively affecting nearly every sector of our economy, and our health delivery facilities are no exception. The slashing of high-volume, high-acuity cases has left some hospitals on life support, and some are on their deathbed.

The Symptomology

As examples of the financial flu that is spreading to our medical facilities throughout the country, executives for two of the largest for-profit hospital systems, Tenet Healthcare and Community Health, have indicated that the loss of revenue from elective procedures coupled with rising expenses have caused a serious revision in their previously projected earnings. Tenet was forced to furlough approximately 500 full-time employees who were not directly involved in clinical care. “I really do think it’s important that people realize that we are clearly feeling the pressure that the entire healthcare delivery system is feeling and facing,” Tenet CEO Ron Rittenmeyer told investors recently.

The situation for not-for-profit hospitals is not much better. FierceHealthcare is reporting that Moody’s and Fitch Ratings recently downgraded their outlook estimates for the nonprofit hospital sector due to the “volatility” of the pandemic. Specifically, Moody’s Investors Services shifted its overall outlook for nonprofits from “stable” to “negative,” primarily due to the deleterious effects of the COVID outbreak. “The biggest thing that every organization is dealing with is a very sort of significant dislocation in their whole financial model,” Eric Jordahl, capital markets practice leader at Kaufman Hall, told Healthcare Dive.

Perhaps worst of all is the prognosis being given to our rural hospitals, many of which were struggling to stay afloat even prior to the NHE. A study performed by Guidehouse prior to the COVID outbreak, found that 25 percent or rural hospitals in the U.S. were at high risk of closing, up from 21 percent in the previous year. The study found that 76 percent of patients living in rural counties bypassed their local hospital in order to receive treatment elsewhere. Despite the recent uptick in patient population in these rural facilities due to the coronavirus, that is not enough to save some of these hospitals, according to one of the authors of the study.

While some had predicted EBITDA growth of 3 percent to 4 percent for hospitals, generally, in 2020, those estimates are now being revised downward. Overall, earnings are expected to decline over the next 12 to 18 months—again, primarily due to redirecting care and resources to COVID patients, which increases costs and reduces profitability. “The average large hospital will see about a 51 percent decline in revenue as a result of the pandemic,” said Christopher Kerns, vice president at the Advisory Board Co., a consulting firm in Washington D.C.

Despite the financial danger to many hospitals in our country today, experts insist that those that are part of a large system will fare best, as they have more resources from which to draw and to re-deploy as needed.

Treatment Trials

Often, with virulent strains or aggressive diseases, medical researchers will test potential new treatments on lab animals and ultimately on human subjects. These trials may often lead to unintended consequences, which in turn will lead to a tweaking of the experimental cure. We are seeing something of this treatment trial process when it comes to remedying what ails our nation’s hospitals. There have been several attempts by both government and the insurance sector to mitigate the financial fever that has ravaged the healthcare community—many of them coming in just the last few days.

For example, the administration recently infused $30 billion directly into the accounts of providers and hospitals to offset the loss of higher-acuity cases. However, several hospital CEOs expressed disappointment in the criteria by which the funds were disbursed, which was the entity’s historical share of revenue derived from Medicare fee-for-service payments. Many believed the better approach would have been to base the payments on the financial burden caused by the pandemic or the number of uninsured patients being treated, per facility. Reflecting this position are the following health executives:

• Kenneth Raske, CEO of the Greater New York Hospital Association, wrote in a memo to association members that the method is “woefully insufficient to address the financial challenges facing hospitals at this time, especially those located in ‘hot spot’ areas such as the New York City region.”
• Another CEO, Carlos Migoya of Jackson Health, said that the way the bailout money is being distributed “could jeopardize the very existence” of the hospital. Jackson Health is a safety-net hospital in Miami, one of the harder-hit cities in the U.S.

In response to such observations, an HHS spokesperson said the agency decided to use Medicare revenue as the basis of distribution because it “allowed us to make initial payments to providers as quickly as possible.” According to Kaiser Health News, CMS administrator Seema Verma has indicated that “children’s hospitals, nursing homes, pediatricians and other health care providers that receive much of their revenue from Medicaid and other sources will be given priority when the second round of funding is distributed.”

Congress has also suspended a 2 percent Medicare reimbursement cut and increased Medicare fees by 20 percent for cases involving COVID patients. In addition, the executive branch has announced that it is also paying hospitals at the Medicare rate for uninsured COVID patients.

Uncertain Prognosis

While it is unknown at this time the extent to which the current pandemic will negatively affect the financial wellbeing of your hospital or health system in the medium and long term, it is good to see so many pulling together to bring healing in the midst of devastation. We at MiraMed salute you who are enduring financial loss, but who are still doing all you can to provide care and comfort to the sick. Hopefully, our hospitals will emerge from all this stronger than ever.

Please reach out to us at info@miramedgs.com if there is anything we can do to assist you during this time.