The effects of the coronavirus on health systems will be far-reaching and long-lasting. Beyond the impact on front-line staff and the disruption of having many employees work remotely, health systems are also seeing a cloud loom when it comes to their finances.
To seek relief from these headwinds, the chief executives of the American Hospital Association, American Medical Association and the American Nursing Association sent a letter to congressional leadership urging that $100 billion of the stimulus package be allocated to front-line health care personnel and providers.
The Senate and the White House have announced a deal for a $2 trillion stimulus package; while the details are still not completely known, CNN reported that hospitals will be earmarked $130 billion.
Delaying surgeries could result in a temporary shift of revenue and create a potential turnover issue.
In the meantime, hospital systems are not standing still. Already, hospitals have been rescheduling many surgeries to make room for an expected influx of patients with the coronavirus. While this move is necessary to confront the widening pandemic, it could result in a temporary shift of revenue and create a potential turnover issue.
Similar to hotels, hospital beds that go unused cannot be shifted to another date or time for consumption. Rescheduling these surgeries could have an immediate impact on volumes while the hospitals wait to treat patients with the virus.
Once the anticipated surge of patients arrives, it could have an effect on the case mix index because some health system executives have reported that the acuity of the patients being seen is increasing. It could also have an effect on who is paying for treatment, because the largest age group requiring in-patient care are those 65 or older and presumed to be eligible for Medicare, which brings in lower reimbursement rates.
The largest group requiring in-patient hospital care is 65-74 …
Source: Bloomberg
In the end, it is unknown if the effect of the Covid-19 cases will be a positive or a negative. An analysis by Bloomberg of two for-profit health systems predicted that it could result in a margin decline of between 4.2% and 5% assuming a 20% hospitalization rate, that 22% of those hospitalized would be admitted to an intensive care unit bed, and that the disease will last six months. (As of March 16, the Centers for Disease Control and Prevention has reported a 12% hospitalization rate.)
Just as the impact on the revenue side is not known, the expense side is also in question. For example, health systems are spending additional money on items like personal protective equipment to prepare for coronavirus patients.
Additionally, health systems with large amounts of assets invested in financial securities are also seeing a sizable chunk of their balance sheets evaporate as equity and bond markets decline. For example, the performance of the iShares iBoxx Investment Grade Corporate Bond ETF, which tracks U.S. dollar-denominated investment grade corporate bonds, held up until March 6 on a year to date basis. Then from March 6 to March 19, the ETF fell about 22%. Treasuries also had a sizable drop from their high on March 6, though they remain in a gain position on a year-to-date basis.
Treasuries recently were caught in the market sell-off …
Source: Bloomberg
Other kinds of hospitals
The analysis above was done using two health system providers that operate mostly acute-care hospitals. But there are other hospitals that are also being affected. Consider children’s hospitals, which will shift volumes from at least March, if not longer, as a result of delaying many of their surgeries. Considering that children’s hospitals may not see many coronavirus patients during the six months modeled above, they will most likely feel additional margin pressure.
As health systems seek to expand capacity, one idea is to use children’s hospitals to treat adults. But that idea was opposed by the Children’s Hospitals Association, as reported by Modern Healthcare on March 24.
We would expect similar issues to present themselves for ambulatory surgery centers and specialty hospitals. Surgery Partners, which operates more than 100 ambulatory service centers, several surgical hospitals and more than 50 physician practices, has seen its valuation hit in the past month, some of which is likely because of delaying surgeries.
… as was the stock of Surgery Partners…
Source: Bloomberg
An additional concern for children’s hospitals is the effect on their development efforts. Many of these hospitals rely on philanthropic gifts to provide for capital expenditures and even for operating expenses. With the financial markets in turmoil, it is possible that this year’s plans will need to be adjusted.
What’s next?
What can children’s hospitals, ambulatory surgery centers and specialty hospitals do to minimize the effect of the coronavirus on their margins and potentially provide relief to general acute-care hospitals?
- Minimize contract labor – To the extent possible, minimizing the use of contract labor — specifically those workers who are on the front line like providers and nurses — could be beneficial not only to your organization, but also to those that are providing care to adults with coronavirus.
- Consider margin improvement projects – Many health systems have focused on margin improvement projects over the past few years. For those systems that not yet done that, now could be the time.
- Work now with major donors – Many significant gifts have a long development period. Those that are in the pipeline should be monitored and evaluated closely. Many in the industry expect gift giving to suffer during this time.
If the stimulus passes
A lot still needs to happen before health care executives can determine how exactly they may participate in this stimulus, if it is eventually signed. But one could expect at least the potential that a component of the reimbursement could be the costs incurred by the hospital as a result of the coronavirus.
The Centers for Disease Control and Prevention has made available a tool for hospitals to track expenses related to the virus. There is no certainty, though, that this tool will match the requirements that would be set forth for access to this stimulus package.
