Analysis of the Financial Impact of COVID-19 on Pennsylvania Hospitals
The Hospital and Healthsystem Association of Pennsylvania (HAP) engaged Health Management Associates (HMA) to complete a review of the financial impact of the novel coronavirus (COVID-19) on Pennsylvania hospitals. HMA conducted interviews with hospital leaders representing several health systems in Pennsylvania (see Appendix B for the list of hospital systems). From the data shared and applying extrapolation methods, we developed statewide estimates of the disruption seen by hospitals in March and projections of the financial impact over the duration of the year.
Hospitals began to experience significant operational and financial impacts starting in mid-March, coinciding with federal guidance, operational necessity and statewide orders to cancel or reschedule all services determined to be non-emergent or unnecessary to preserve organ function or avoid further harm from underlying conditions or diseases. As such, the March results represent less than half a month of the full impact. Even so, we estimate Pennsylvania hospital operating margins declined by $914 million in March compared to expected amounts. This decrease is largely attributable to a loss of revenue related to cancelled and deferred services, which often have higher overall margins than those services remaining. Operating expenses did not change materially as cost savings from deferred services were replaced—and at times eclipsed—by the more resource intensive COVID-19 service delivery and preparation activities.
Although there is much uncertainty regarding the length and scale of the remaining pandemic period, hospitals forecast significant losses across the April to June quarter. These projections vary based on assumptions such as projected volumes of COVID-19 patients, timing of reinstituting elective procedures, and shifts in payer mix due to the economic downturn. We estimate the operating shortfall statewide to range from $4.40 billion to $4.86 billion.
Because of uncertainties, most systems we surveyed did not attempt to forecast the second half of the year, but it is generally believed that negative impacts will persist. If negative margins are 10% of revenue (which some believe is optimistic) this would result in an additional $4.7 billion margin shortfall for July- December 2020.
The federal Coronavirus Aid, Relief, and Economic Security (CARES) Act1 allocated $100 billion in grant funding to providers. The first $30 billion was distributed in April 2020. We estimate that Pennsylvania hospitals and health systems would receive to
$3.13 billion if all $100 billion goes to health care providers and is distributed in the same proportion as the initial $30 billion payment— about 30% of estimated 2020 margin shortfall.
As the COVID-19 disruption continues, hospital financial concerns about liquidity will grow. Medicare recently accelerated hundreds of millions of dollars in payments to hospitals across the state, but the repayment of these funds is scheduled to begin in 120 days—coinciding with a time of expected cash flow concerns for hospitals. Without a better understanding of when and how hospitals will be able to again ramp up services, it is unclear whether many hospitals will be able to ride out the financial disruption caused by this crisis.
1 Pub. L. 116-136
Topics: Emergency Preparedness, State Advocacy
Revision Date: 4/19/2020
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