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AHA calls for more CARES Act funds, projects $323 billion in losses

Hospital margins could sink to a median as low as -7% by year's end, and half of all hospitals may be in the red.

Jeff Lagasse, Associate Editor

At a press conference Tuesday, the American Hospital Association called for more CARES Act funding for the nation's hospitals, citing a projected $323 billion in losses industry-wide due to the ongoing COVID-19 pandemic.

Pulling from statistics compiled by Kaufman Hall, AHA President and CEO Rick Pollack said that due to factors such as staffing inadequacies, the cancellation of elective surgeries and shortages of personal protective equipment, U.S. hospitals are anticipating about $120 billion in losses from July to December alone.

Pollack added that the projections are likely conservative given the coronavirus surge that many areas of the country have been experiencing. Half of all hospitals may be operating in the red by the end of the year, he said.

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"Those of us in our field now recognize that we are coexisting with COVID, and we will be experiencing ups and downs for weeks and months to come," said Pollack. "We are doing everything necessary to beat COVID today as we also maintain regular operations for other ailments and injuries. Even as we look to the future with great optimism in regards to a vaccine being developed, there are unknowns when it comes to manufacture and distribution."

WHAT'S THE IMPACT?

While the AHA said it appreciated the financial support that hospitals have been given through the Coronavirus Aid, Relief, and Economic Security Act, more will be needed in order to keep hospitals afloat and communities safe. Specifically, the AHA is asking the federal government for full forgiveness of Medicare accelerated payments for hospitals.

Kaufman Hall managing director Ken Kaufman said Tuesday that when COVID-19 started ramping up in the U.S. in February and March hospital expenses went up dramatically. Labor expenses increased, and hospitals and health systems scrambled to procure the necessary PPE supplies. Add to that the cancellation of elective surgeries and other lucrative business lines, and the decline in revenue has been unprecedented.

Median hospital margin has historically hovered around 3.5%, said Kaufman. In the first quarter of 2020, that median fell to 2%. In the second quarter, it fell to -3%. Without the CARES Act funding, he said, the actual median would have been -15%.

"It demonstrates how absolutely essential the CARES Act was to preserve the financial stability and financial integrity of American hospitals during the second quarter," said Kaufman.

Median operating margin could hit -7% in the second half of the year, according to Kaufman Hall's projections, which is not sustainable for the nation's hospitals. 

"Without more federal funds, hospital margins would fall to what we call unacceptable levels," said Kaufman.

HOSPITAL STRUGGLES

John Haupert, CEO of Grady Health in Atlanta, Georgia, said during the call that COVID-19 has had about a $115 million negative impact on Grady's bottom line; $70 million of that is related to the reduction in the number of elective surgeries performed, as well as dips in emergency department and ambulatory visits. Increased PPE spend has drained millions more.

Haupert said that, without the CARES Act, Grady would have a -6.5% operating margin. It typically hovers around 3%, he said.

During one week in March, Grady saw a 50% reduction in surgeries and a 38% reduction in ER visits. The system is almost back to even in terms of elective and essential surgeries, but due to a COVID-19 surge currently taking place in Georgia, it has had to suspend those services once again. ER visits have only come back about halfway from that initial 38% dip, and the system is currently operating at 105% occupancy.

"Part of what we're seeing there is reluctance from patients to come to hospitals or seek services," said Haupert. "Many have significantly exacerbated chronic disease conditions."

Sheila Currans, CEO of Harrison Memorial Hospital in Kentucky, said her facility has struggled mightily during the pandemic. Harrison has seen a 760% reduction in utilization, and, while it has managed to maintain a 14-day PPE supply, Currans urged the federal government to forgive Medicare accelerated payments, saying the help is needed in order for the hospital to keep cash available.

"In a good year, we're going to be happy with a .6% margin," said Currans. "We're one of the few that can save that heart muscle quickly … but we're always happy with any kind of margin.

"We are desperately in need of continued federal help," she said. "We're not ready to start paying back anything. We'd love to see Congress decide the Medicare advance can be forgiven."

THE LARGER TREND

In a May letter, the AHA and other provider groups asked Congress to provide loan forgiveness for accelerated payments; allow investor-owned hospitals to participate in Federal Emergency Management Agency funding programs without state contracts; lift the cap on graduate medical education slots; repeal the Institutions for Mental Diseases exclusion until one year after the pandemic; and increase outlier payments and extend the eligibility of the diagnosis-related group add-on to long-term care hospitals.

Rural communities need increased flexibilities for e-prescribing and telehealth, and should get increased funding for broadband access. Critical access hospitals need to be able to cost-settle after the COVID-19 pandemic, the letter said.
 

Twitter: @JELagasse
Email the writer: jeff.lagasse@himssmedia.com