Impact of COVID-19 on Hospitals Financial Health

Impact of COVID-19 on Hospitals Financial Health

Utilization of services and financial health of hospitals continue to be affected by the pandemic. Here’s what that means for Hospitals and staff:

Just when we thought we were slowly starting to get back to “normal,” the Delta, and now Omicron variants, have shifted plans. If there’s anything you can be sure of with this virus, it’s that it will create uncertainty.

Healthcare Uncertainty’s Effect on Coverage

The healthcare industry is not seen as resilient and “recession proof” as it once was — especially in light of a pandemic. We have seen pandemic responses in the following areas:

  • Unemployment — meaning loss of insurance or reliance on public plans for coverage1
  • The shift of more employers to high deductible health plans — thus cost shifting to the employee, making it less likely for a patient to want to receive care1

Hospitals Operating at a Loss

Hospital margins have always been thin. Pre-COVID, the median hospital margin was 3.5%2, with several hospitals operating at a negative margin. Negative margin hospitals will continue to grow, especially as elective and other outpatient procedures are once again put on hold.

Healthcare Impacts Facilities Differently

The financial impact of COVID varies depending on the region and type of facility3:

  • Some have increased revenue due to COVID hospitalizations, but on the flip side, they have increased costs due to additional staffing and resources to accommodate these patients.
  • Others are only seeing losses on the revenue side due to delays in non-essential services.

Hospitals that received a higher share of revenue from outpatient services and had higher surgical volume (and were thus at highest risk for financial challenges due to COVID-related restrictions) were small, rural, and critical access hospitals.

Operating with positive margins allows hospitals to make the necessary investments in facilities and technologies, as well as build up reserves to meet unexpected shortfalls.

What Lies Ahead for Healthcare Facilities?

By the end of 2021, Kaufman Hall predicts that nearly half of the hospitals in the US will have negative operating margins.

Even once we start to recover from COVID, patients are likely not to be as eager as they once were to rush back to the hospital — due to unemployment and therefore the lack of or limited insurance coverage.

Health implications related to the coronavirus will drive elevated health system utilization long after the acute phase of the pandemic has ended, likely leading to increasing costs and higher insurance premiums for years to come. There will be ongoing treatment of chronic conditions related to what may be permanent damage caused by the virus due to delays in care.5

Healthcare Facilities that Prioritize Planning Will Prosper

While the road to a strong financial recovery may not be immediate, careful, smart planning can help facilities mitigate future financial risks. Not knowing what the future holds with COVID and if/when there will be another surge, it will be critical from a planning perspective to plan for a “normal” world and then layer in various scenarios of what could happen regarding COVID, future disasters or pandemics and economic downturns.

Hospitals must have a structured long-term approach to make the critical investments necessary to survive and compete in the marketplace. When capital budgets continue to be stretched, prioritization will be key. Let our experts assist you in determining where the low hanging fruit is and provide you with a strategic 10-year plan to get your facility in an ideal state. Contact us today.

Call-to-Action graphic for COVID-19 Impact Advisor's Blog

Sources

  1. https://www.nejm.org/doi/full/10.1056/NEJMp2018846
  2. https://www.aha.org/guidesreports/2020-07-20-effect-covid-19-hospital-financial-health
  3. https://jamanetwork.com/journals/jama/fullarticle/2765698
  4. https://www.aha.org/system/files/media/file/2021/03/Kaufman-Hall-2021-Margins-Report-final.pdf#page=3
  5. https://www.healthcarefinancenews.com/news/healthcare-will-expand-and-deal-fallout-covid-19-decades-says-fitch
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