U.S. hospitals’ median operating margin could sink to -7% by the end of 2020 without additional federal government support to offset COVID-19 losses, a new report finds.
The American Hospital Association commissioned the report from healthcare consultancy Kaufman Hall and timed its release on Tuesday to coincide with bipartisan talks around a new federal COVID-19 relief package, just as increased unemployment benefits are set to expire. The prominent hospital lobbying group has released multiple reports during the pandemic to support its requests for more federal grants and loans.
In the latest report, Kaufman Hall found 51% of America’s hospitals will have negative margins by the end of the year without additional federal support. Under an optimistic scenario, hospitals’ median margin would be -1%. Under a less optimistic one, that margin could sink to -11%, the report found.
“For any organization, a positive operating margin is essential to long-term survival,” AHA CEO Rick Pollack said on a call with reporters. “Positive operating margins allow hospitals and health systems to invest in new facilities, treatments and technologies to provide better care for patients and communities.”
The median U.S. hospital margin fell to an estimated -3% in the second quarter, which ended June 30, compared with about 3.5% in a typical quarter, Kaufman Hall found. The report estimates that would have been -15% without the funding provided under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
The pandemic has had a $115 million negative impact on Grady Health System’s bottom line from reduced procedure revenue and higher supply expenses, CEO John Haupert said on Tuesday’s call. Given the ongoing surge in COVID-19 cases in the Atlanta metro area, Grady now expects a -3% margin through July without additional federal relief.
Grady is currently operating at 105% occupancy. The uptick in coronavirus patients prompted the system to once again suspend elective procedures that would require inpatient beds to preserve capacity, even after the system had made progress after restarting such procedures, Haupert said.
Hospitals that rely more heavily Medicare and Medicaid are faring worse. On a good year, executives at Harrison Memorial Hospital in Cynthiana, Kentucky, would be happy with a 0.6% margin because they’d make payroll, CEO Sheila Currans said on the call. Today, the hospital’s margin is roughly -25%, and that’s with CARES Act support.
Currans said the hospital “desperately” needs more federal help, including forgiveness on its accelerated Medicare payments.
“It’s going to be September soon and we are not ready to start paying back anything,” she said.
The AHA’s Pollack shared a list of asks to Congress: full forgiveness of the Medicare accelerated payments, more emergency provider relief grants and liability protections for frontline caregivers. The AHA also wants to ensure people maintain their health insurance and the uninsured have increased coverage options.
He said the AHA isn’t asking for specific dollar amounts, although when it comes to forgiveness on the accelerated Medicare payments, it should be on the order of the $100 billion that’s been provided. He also said the emergency relief fund for providers should be replenished, particularly given the recent spikes in coronavirus cases. The U.S. House of Representatives’ opening bid on a relief package included another $100 billion allocation for the healthcare provider relief fund, which Pollack said is a “good starting point” for discussion.
The Kaufman Hall analysis was based on two broad scenarios: a less optimistic scenario in which coronavirus cases continue to surge through the fall of 2020 and a more optimistic one that assumes a slow, steady decrease in cases and improved patient confidence in returning to hospitals. The former scenario was given 60% weight in the analysis, while the latter was given 40%.
The situation is fluid and very unpredictable, which makes precise forecasting very difficult, Ken Kaufman, managing director and chair of Chicago-based Kaufman Hall, emphasized on Tuesday’s call.
The AHA said in June it expects hospitals and health systems will lose more than $320 billion this year because of the pandemic, with more than $200 billion of that taking place between March and June and the rest through year-end, mostly because of lower patient volumes.
Where hospitals ultimately land depends on how willing patients are to return for services despite the ongoing pandemic. Dr. David Perlstein, CEO of SBH Health System in the Bronx, said on the AHA call most of its care is still happening virtually or in ambulatory settings.
“There is a continued sense of fear, a fear of hospitals,” he said. “I think we will create a new phobia.”