Hospitals Facing Acute Financial Crunch Due to COVID-19

Hospitals Facing Acute Financial Crunch Due to COVID-19

Since the COVID-19 pandemic hit the United States, hospitals around the country are grappling with a flood of coronavirus patients so much so that treatment for other patients dropped significantly, causing a massive loss of revenue.

Hospitals have been forced to shut down elective surgeries to curb the spread of the coronavirus. Hospitals over the entire nation rely on these elective surgeries for much of their revenue because they often generate more income. Private insurers and Medicare also tend to pay more for these surgeries than they do for other kinds of care procedures.

The shutdown of elective surgeries and other non-essential medical care by federal and state officials has left the nation’s 5,200 hospitals in a dire state. Hospitals are continuing to spend money on the upkeep of pieces of equipment that are not being currently used, even paying salaries to staff and doctors associated with those halted procedures.

The majority of the nation’s hospitals are nonprofit, but they still need a steady roster of patients to survive. They must pay salaries of hospital staff who cannot work because they have contacted coronavirus. Shortages of ventilators, personal protective equipment (PPE), and test kits in hospitals have been widely reported by the media.

Now that hospitals are focused on treating mostly COVID-19 patients, they say that they are losing money because of the lengthy and intensive medical care these patients require. In addition, hospitals had to increase spending for protective gear for staff treating COVID-19 patients, as well as to add extra staff, beds and purchase other equipment such as ventilators. Even the hospitals around the country that are half empty.

Insurance companies, where the profit lies, followed suit. Noticeably, even heart attacks, strokes, and other “non-deferrable” care are far lower than usual, as people fear the virus or simply don’t think they can not pay given their financial uncertainty.

Health insurers like UnitedHealth Group, one of the nation’s largest, have disclosed that they are saving enormous amounts of money from the decline in elective care. This amount is now more than what they are reimbursing hospitals for treating the coronavirus.

Once deemed a bulwark in times of economic crisis, this pandemic – with a loss of millions of jobs in health care alone last month – has exposed the care sector’s vulnerabilities. The coronavirus pandemic induced-recession brought hospitals to their knees. Hospital executives are forced to turn to salary cuts, furloughs, and other measures to cope with the loss in revenue totals as much as $50 billion a month.

Hospitals are often the biggest employers in cities and states. The financial damage caused by the COVID-19 pandemic could cause many hospitals to close within a year, according to an analysis by USA Today. They need a massive government stimulus to survive the crisis.

USA Today’s analysis of financial reports, before the pandemic hit the U.S., thousands of hospitals across the nation had low monetary reserves. Out of the 5,000 hospitals that reported cash-on-hand figures in 2017 only 2500 hospitals had enough money to cover one month of salaries.

Therefore, many hospitals were already under financial duress before the COVID-19 pandemic arrived in the U.S. This substantial revenue loss due to canceling nonemergency care and increased supplies costs could place them in serious jeopardy and even cause them to close their doors permanently.

The reality is that all hospitals – large and small, urban, suburban, and rural, nonprofit and independently owned – will face a financial crisis by the fall, followed by a default on their debt obligations unless the government provides a bailout.

These care facilities stepped up to do the necessary during the current coronavirus pandemic. Now, their reward is only a small snippet of their normal revenue, an advance payment funding from Medicare, and some government funding for COVID-19-specific activities. This leaves hospitals vulnerable to losses from turning away all the other paying customers.

So what can be done to avoid this? The government must step in and Congress must convert the three to six months of advance payments into grants that hospitals do not have to repay. After all, hospitals have been the primary COVID-19 shield for Americans, saving thousands of lives. Many hospitals are hiring a professional medical collection agency to recover money from past unpaid bills. Every bit helps to improve the cash flow of hospitals but that itself is not enough.

The $100 billion through the Cares Act signed by President Donald Trump to combat the damage caused by COVID-19 is a start but is inadequate to cover the lost revenue. Even with the latest emergency fund of 75% billion provided for hospitals, these care facilities will still take a sizeable hit.

And while Congress is funneling these relief funds to hospitals, much of the money has flowed to the biggest hospital systems serving the highest number of Medicare patients. Rural hospitals, already ill-equipped to deal with the virus, and hospitals serving low-income patients have received much less.

While this bandage may keep hospital systems barely afloat during the crisis, it just postpones the financial disaster. The American Hospital Association estimates the losses at $50 billion per month and predicts a four-month loss of $200 billion by the end of June.

But as lockdowns are being lifted and restrictions ease around the country, some states have begun allowing elective procedures again. Restarting non-emergency procedures should help offset some of the revenue losses that were forecasted. However, with lockdown measures getting relaxed in many states, virus can start spreading again and problems can quickly resurface to new hights.

Hospitals are ramping up surgical volume and reconfigure spaces, isolating suspected cases, and infected patients in distinct units to accommodate patients for elective and non-essential procedures.

Some hospitals, whosesurgeries dropped as much as 70 percent due to the pandemic, have already begun reaching out to patients and re-engaging people. These hospitals have begun allowing procedures unrelated to the coronavirus, like knee replacements, colonoscopies, and mammogram screenings, removing a tumor.

Since restarting, this tactic has proven to be fruitful, and the number of surgeries they are doing is growing. But the lingering thought of a second wave of the virus and a fear of contagion may deter some patients from returning.

Hospital fears that this can worsen the already dire state their in and could force them into a situation where they do not have enough money for the supplies and staff necessary to continue the elective procedures they need to generate cash effectively.

If hospitals can’t start earning revenue, they will have to close their doors. So far the limited payments along with large layoffs have allowed hospitals to continue operations at a maintenance level as they wait for the surge to pass and hope for normal demand to return.

Finally, we cannot expect hospitals to go at it alone during this pandemic. All payers must step up to the plate. Several doctors and nurses have lost their own life while saving the life of fellow Americans. The Government together with the hospitals and insurance companies should try to avoid this financial crunch and massive accounting losses that threaten the nation’s hospital system.