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Hospitals Save Our Lives. How Do We Save Them? Part One

Part One of a Four-part Series

The War on COVID-19 Will Cause Lasting Damage to Hospitals Everywhere

Under pressure from criticism swirling around the affordability crisis, hospitals have long been pressured to cut costs and eliminate excess beds to increase efficiency. “Excess” capacity has been erased in many markets with shifts to outpatient care and closing facilities altogether.

And here we are. Across the country, those closed facilities — along with convention centers and college dorms — are being retrofitted to supply new hospital beds in a pandemic.

In “peace time,” the public, press, and policymakers expect hospitals to operate like businesses, laser-focused on the bottom line. In “war time,” we require hospitals to pivot to nonprofits acting for the public good without regard for their own viability. Now we’re all at war against COVID-19, a battle that will continue into May and perhaps into summer in many markets.

It is a battle in which hospitals risk being casualties, along with many thousands of American businesses.

Previously, we wrote that so many hospitals rely on elective surgeries to keep their doors open. If those surgeries don’t return soon, many hospitals will be forced to take drastic steps. Some may face bankruptcy, sale, or closure if temporary damage can’t be matched with short- and intermediate-term solutions. Now as facts come into focus, the impacts are more dire than we predicted:

  • New York-Presbyterian Hospital estimates a negative impact on operations of between $350 million and $700 million. This loss will destroy the hospital’s projected $246 million operating income and then some.
  • Beaumont Health in Michigan projects $1 billion in lost topline revenue (in a $5 billion system) and operating losses of $70 million per month.
  • Bons Secours estimates losses of $100 million per month and furloughed 700 professionals.
  • Centura Health in Denver projects $1.5 billion in lost topline revenue (in a $4 billion system).
  • Trinity Health furloughed 2,500 employees at eight hospitals, and executive leaders are taking 25 percent pay cuts.
  • Tenet Healthcare has furloughed 500 employees and is evaluating thousands of additional furloughs.
  • Cape Fear Health System in North Carolina furloughed 300 nonclinical professionals.
  • Williamson County Medical Center in Tennessee furloughed 200 professionals, with more to follow.
  • One state hospital association reports that its member hospitals are losing $1 billion per month, 80 percent from lost surgical revenue, and 20 percent from increased supply and overtime costs. And that state isn’t even New York or California.

And that’s just a few. There are dozens, perhaps hundreds of hospitals and health systems in the same sinking boat.

Trade media is paying attention. Modern Healthcare recently captured the looming financial crisis as well:

“It will be large and come on faster than people expect and could cripple the core of America's hospital systems during this pandemic [and certainly after]. The best way to illustrate this is using Beaumont Health as an example…Over the past few weeks, Beaumont has eliminated over 80 percent of their surgery/procedure volumes and significant portions of their imaging and related historical services to prepare for the surge. Beaumont must also preserve its ability to treat non-COVID-19 urgent patients for trauma injuries, births, heart attacks, etc. What this also means is that Beaumont’s $5 billion of annual revenue will be reduced by $1 billion to $2 billion as they shift from high-revenue surgical and related procedures to much lower revenue medical inpatients with all the acute complications associated with COVID-19. The 20 percent to 40 percent drop in revenue can in no way be absorbed by its 4 percent operating margin and cash reserves. That missing revenue is critical cash needed to meet payroll for 38,000 healthcare employees every two weeks.”

Mainstream media is also paying attention. Addressing decision-makers in business and government, the Wall Street Journal reports,

“Hospitals are burning through cash even as nonprofit operators have seen their reserves in investment portfolios dented, spurring credit agencies to put the sector on a negative outlook—despite an expected influx of money from a newly passed federal aid package…. Fitch Ratings said Monday that markets had erased about 30 days of operating cash for the median nonprofit-hospital borrower in its credit portfolio [note from ReviveHealth: that a healthy hospital had 200 to 300 days of cash before COVID-19 hit]. Many hospitals will likely violate terms for debt-service coverage set by lenders in the municipal bond markets, triggering a “soft” default in the first or second quarter, Fitch hospital analyst Kevin Holloran said. Nonetheless, hospitals are widely expected to pay bondholders on time, he said, avoiding a ‘hard’ default that could accelerate repayment.”

The implications are huge, continues the WSJ.

“Major credit-ratings firms lowered their outlook for hospitals to negative in recent days, as efforts to fight the pandemic hurt hospital profits and the overall economy. The federal help will likely fall short of making up the industry’s full losses, said Gary Taylor, an analyst with JPMorgan Chase & Co. Based on an informal survey of hospital owners last week, Mr. Taylor estimated that revenues are down 40 percent to 60 percent, with sharp drops in emergency-room visits and inpatient surgical volumes. ‘The overall level of activity is lower than we’ve ever seen,’ Taylor said. ‘It’s a really unprecedented situation.’ On the other side, he added, health insurers could see a financial benefit from the forgone procedures, as the cancellations save them money.” (Wall Street Journal, 4/2)

What is clear is this: Whether we agree or not with any single proposal, statewide and industry-wide solutions to the financial crisis for hospitals will help, but they won’t fill the entire gap. There must be an aggressive response across the industry to save our hospitals.

Hospitals have saved our lives. How do we make sure we save them?

Check out part 2 of this blog series.

April 10, 2020
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