Survey responses provide snapshot of the toll of the COVID-19 pandemic on hospital finances

• A government-issued report used survey responses to examine the impact of the COVID-19 pandemic on hospitals in various areas of operation, including finances.
• Pandemic-related constraints have prevented revenues from keeping up with surging costs.
• Questions about the rules for repaying Medicare advance payments and Paycheck Protection Program loans are causing uncertainty.

A new report from a government agency provides context for the financial challenges facing hospitals during the COVID-19 pandemic.

The Office of Inspector General at the U.S. Department of Health and Human Services released a report based on survey responses received Feb. 22-26 from administrators at 320 hospitals across 45 states and Washington, D.C. The goal was to examine how the pandemic has affected hospitals’ capacity to care for patients, staff and communities.

Finances were one of many areas examined, with “hospitals reporting that their operational costs have risen dramatically while their revenues have declined, threatening their financial stability.”

Overall, the long-term nature of the COVID-19 pandemic has taken a toll on hospitals, which have struggled to strike a balance between addressing the crisis and attempting to resume routine operations, OIG found.

Surging costs represent a big concern

Costs have increased significantly in various areas, survey respondents said, including staffing, PPE and COVID-19 testing, treatment and vaccination. Administrative costs associated with data-reporting requirements for pandemic-related services also are a drag on hospital finances.

“Some hospitals expressed that the combination of their higher costs coupled with declining revenues raised concerns about whether they would be able to remain in operation,” the report states.

Not surprisingly, Disproportionate Share Hospitals and hospitals serving rural communities tend to have greater concerns about financial stability. “Several hospitals noted that they faced financial challenges prior to the pandemic and worried that it would be hard to recover financial stability after the pandemic ends,” the report states.

Payment and revenue aren’t keeping up with costs

Even months after CMS lifted the mandatory pause on elective procedures, “non-COVID-19-related services have remained low, with fewer patient visits for both routine and emergency care and fewer elective procedures (compared to before the pandemic).” One responding administrator works at a hospital that has experienced a 25% revenue drop because of the decrease in volumes.

In addition to volume-related concerns, respondents said, Medicare fee-for-service payment does not always cover the cost of providing care to COVID-19 patients. Even the 20% boost in payment for COVID-19-associated DRGs may not negate the shortfall.

Respondents “believed that these reimbursement amounts often did not cover their added staff and equipment costs associated with COVID-19 patients who have prolonged ICU hospital stays,” according to the report.

Medicare alternative payment models offer a revenue cushion in some instances, but hospitals also face the possibility of incurring penalties under such models. One respondent’s hospital was at risk of losing “hundreds of thousands of dollars” in incentive payments because patients with COVID-19 often have long stays and a higher risk of hospital-acquired infections.

Rules for repaying loans are murky

Within the next month, most hospitals have to begin repaying the Medicare advance payments they received near the beginning of the pandemic. Surveyed hospitals described the loans as crucial in sustaining cash flows after the crisis hit, but they “anticipated problems repaying the loans.”

Hospital advocacy groups hoped loan forgiveness would be part of the recently signed COVID-19 relief legislation, known as the American Rescue Plan, but no such accommodation was included. The American Hospital Association has said it will seek to work with Congress and the Biden administration on various issues to shore up hospital finances, including relief on the advance payments.

Survey respondents also said guidance on other funding sources, including the Paycheck Protection Program, “seemed to have changed over time, leaving them uncertain about the current rules for repayment.”

How best to support hospitals

The report summarizes responses to the question of how the federal government and policymakers can best support hospital efforts to emerge from the pandemic.

Regarding finances, respondents said HHS could modify the rules for the Provider Relief Fund to allow recipients to use the funds over a longer duration, including to complete ongoing projects such as facility expansions and upgrades.

Medicare loan forgiveness, or at least an extension of the repayment timeline, also would provide a boost, according to the survey. Current rules call for Medicare to recoup the loans at a rate of 25% of payments over 11 months, then 50% over the ensuing six months before issuing a letter seeking repayment of any remaining balance.

CMS also should ensure that telehealth payment policies “account for the level of resources needed to provide telehealth services, including services for which there are provider shortages such as specialty care,” respondents said.

Higher levels of financial support may need to be targeted to rural hospitals, including critical access hospitals, and hospitals that operate in underserved communities, respondents said.