Over the past few weeks, we have been reaching out to our clients as well as hosting several virtual CFO Forums. Through those interactions, our clients in the health care sector have been painting a grim picture of the financial effects of the coronavirus.
Even with the total stimulus totaling $175 billion for the health care industry, we do not expect that to be enough.
As patients infected with the virus have flooded into hospitals, health care providers have made room for them by delaying surgeries and other elective procedures, all while accommodating patients with less ability to pay.
No one disputes how vital and necessary this work is. But the result, providers are telling us, is a financial squeeze in which volumes are decreasing and expenses are increasing. Now, that squeeze is showing up in the data.
Take HCA Healthcare Inc., the large for-profit hospital system, which recently announced its earnings for the first quarter. By any measure – admissions, emergency room visits, surgeries – its business has fallen significantly from a year earlier.
Source: HCA earning transcript via Bloomberg
The pain is being felt across the industry. Kaufman Hall, a health care consulting firm, found a similar year-over-year downturn among the more than 800 hospitals it surveyed nationwide for March.
Source: Kaufman Hall
We expect that these results will only continue in April as the burden of treating infected patients increases on health care providers.
More relief on the way
The payment of $700 million to HCA from the Health and Human Services Provider Relief Program was their share of the first $30 billion distributed through the CARES Act, the government’s $2.2 trillion relief package passed in March. The CARES Act provided $100 billion into this fund. There has been limited information released on how the remaining $70 billion will be paid.
More relief, though, is on the way. On April 21, the Senate approved a supplement to the Paycheck Protection Program and the Health Care Enhancement Act. The bill, which is expected to be approved by the House and signed into law, will add another $75 billion to the Provider Relief Fund.
That same day, many of our provider clients received e-mails from the Department of Health and Human Services asking for information related to their hospital capacity and other data. That data, the e-mail said, will be used for “targeted distributions to hospitals and other facilities that have been particularly affected by the increased burden of caring for those with the coronavirus.”
Is it enough?
Even with the total stimulus totaling $175 billion for the health care industry, we do not expect that to be enough to cover the lost revenue and increased expenses incurred during the pandemic. The HCA example is consistent with our other observations — that the first $30 billion distribution was less than 2% of total revenue, which in many cases is a drop in the bucket, considering the decline in patient volume.
Depending on how the remaining dollars in the Provider Relief Fund are paid out, it still possible it could be less than 10% of revenue, which, depending on the length of the delay of elective procedures and the disruption to the health care ecosystem, will not be enough.
Managing the downturn
Many of our observations have shown providers taking steps to lessen the financial impact of the downturn:
- Furloughs of staff
- Changes to paid-time-off policies
- Reductions in regular and incentive compensation
- Changes to defined contribution plan matches
Most providers, though, are using these options as a last resort. It was only recently, after all, that they were facing intense competition for skilled workers to fill their staffs, and they do not want to face another uphill battle for talent when the recovery arrives
Other ways of improving margins
We are seeing many clients participating in grants and other stimulus programs from their states. In addition, nonprofit and governmental health care providers are evaluating accessing the funds distributed by the Federal Emergency Management Agency.
We are also seeing many of our clients reevaluate their business functions as the coronavirus has shown many executives new opportunities they may not have considered to be a priority:
- Creating a more formalized and wider reaching remote workforce
- Optimizing telemedicine platforms across their enterprise
- Enabling an empowered workforce to reduce the “meeting culture”
Additional value of our client reach-out
One benefit of our client reach-out was that during one of our Virtual CFO Forums one client mentioned some of their observations and processes of obtaining personal protective equipment. A few days later, another CFO from a large children’s hospital who was looking for certain protective equipment and they had excess N-95 masks. We were able to connect the two hospitals’ CFOs and they were able to discuss a potential swap of supplies.
For more information on how the coronavirus is affecting midsize businesses, please visit the RSM Coronavirus Resource Center.