Amid ‘dire’ losses, some eye restart of hospital elective surgeries

• Hospitals had double-digit revenue declines in March as the coronavirus impact started.
• Revenue losses have been driven by large reductions in patient volumes stemming from canceled elective surgeries.
• Emerging guidance may lead hospitals to restart elective surgeries as soon as May.

Hospital revenue has steeply declined in recent weeks amid the response to COVID-19, and now some are looking for ways to restart revenue-generating services.

Among the more than 800 hospitals tracked by Kaufman Hall, which provides management consulting and other services, March revenue effects identified in a recent report included:

• 13% decline in budgeted inpatient revenue
• 17% decline in budgeted outpatient revenue
• 13% increase in bad debt and charity care year-over-year

“The data paints a dire picture for U.S. hospitals,” said Jim Blake, managing director, Kaufman Hall. “While the nation is relying heavily on our healthcare system, the COVID-19 response actions are having a devastating financial impact on these organizations. These initial numbers only reflect the first two weeks of the COVID-19 response and likely indicate more negative results in the future.”

Other findings included:

• 150% decrease in operating margins year-over-year
• 100% decrease in operating EBITDA margins year-over-year
• 170% deficit relative to budget in operating margins for March

Volume drops drive losses

Among the more than 500 hospitals served by TransUnion Healthcare, a revenue cycle management company, overall patient volumes from inpatient, outpatient and emergency departments (EDs) declined between 32% and 60% March 1-29, compared to previous levels, according to a new analysis.

The decline in patient volumes followed adherence by patients to stay-at-home and social distancing policies and decisions by hospitals to cancel elective surgeries as recommended by CMS, said Jonathan G. Wiik, principal of healthcare strategy for TransUnion Healthcare.

Similarly, Kaufman Hall found:

• 20% decline year-over-year in operating room minutes
• 15% decrease year-over-year in ED visits
• 53% decline in the monthly median hospital occupancy rate

“Depressed volumes of patient procedures, due to delays of elective care caused by coronavirus-related business disruption, are weighing on the revenue and cash flow of service providers,” a recent Fitch Ratings analysis stated.

Fitch is forecasting top-line growth for providers of -5% to -25% for 2020, followed by a recovery in 2021 that does not bring business back to 2019 revenue levels.

Congress has tried to address coronavirus-related revenue losses for hospitals and other providers with a cumulative $175 billion in grants, but that sum is likely insufficient, an April 24 statement from Moody’s Investor Service stated.

“Although the new funds will further curb some of the industry’s losses caused by the suspension of elective services and increased costs to fight the coronavirus, we do not believe it will fully compensate providers, and still expect hospitals to suffer material losses and reductions in cash flow over the coming months,” said Dan Steingart, vice president and senior credit officer at Moody’s.

Restart eyed

On April 19, CMS issued recommendations for providers to restart services in areas “with low incidence or relatively low and stable incidence of COVID-19 cases.”

The new guidelines for providers looking to restart inpatient care include:

• Make a gradual transition
• Coordinate with local and state public health officials
• Review the availability of personal protective equipment and other supplies, workforce availability, facility readiness and testing capacity

Those guidelines come on top of other critical guidance for hospitals, such as from the Centers for Disease Control and Prevention and the American College of Surgeons, Wiik noted.

Although news reports have said some hospitals in areas little affected by the coronavirus may be considering restarting their elective procedures, Wiik has not received any confirmation of such steps. However, hospitals could restart elective surgeries in May, given that meeting the various guidelines likely will take at least two more weeks, he said.

Beyond the financial and logistical hurdles of meeting the various guidelines, Wiik identified other challenges hospitals will need to address as they restart elective procedures:

• Obtaining the ability to perform sufficient coronavirus testing
• Convincing patients that hospitals are safe locations for elective surgery
• Ramping up capacity fast enough to keep patients from seeking care elsewhere
• Competing successfully with ambulatory surgical centers, which may not have had COVID-19 cases

Wiik expected hospitals to slowly phase in elective surgeries, based on the severity of need by patients, and to not reach full volumes until mid-summer.

He plans to provide further insight on the issue during an April 28 webinar hosted by HFMA titled “COVID-19: Addressing Financial and Operational Impacts to Providers.”