Medical workers wearing masks walk past a ‘Thank You’ sign outside of Mount Sinai Hospital amid the coronavirus pandemic on May 3, 2020 in New York City.
Alexi Rosenfeld | Getty Images
When hospitals across the United States halted elective procedures back in March, they immediately started hemorrhaging revenue.
That’s in large part because U.S. health systems make a sizable chunk of their revenues from high-priced, non-emergency procedures. Conservative estimates indicate that U.S. hospitals are losing more than a billion dollars per day by complying with the guidance from policymakers and the leading medical associations to preserve resources for Covid-19 patients.
In the medical profession, elective procedures are surgeries that can be scheduled in advance, including many that are medically necessary. They are the financial foundation for many hospitals. Health systems bring in about $700 more per admission than emergency room admissions and surgical stays account for roughly 48 percent of hospitalization costs, studies have found.
The American Hospital Association is now reporting that hospitals are bleeding more than $50 billion per month. Private equity investor and public policy professor Meghan Fitzgerald, estimates through her own research that it’s about $1 to $1.2 billion per day. “Many of these procedures were medically necessary, and — yes — profitable, enabling these institutions to serve all patients,” she said.
Many hospitals won’t publicly disclose their revenues. But the chairman of the Department of Medicine at UC San Francisco, Dr. Bob Wachter told CNBC that his hospitals lost more than $5 million per day in April alone, and that many of the wards are sitting mostly empty.
“It’s ironic in a middle of a pandemic that health care spending would be down,” said Larry Levitt, the executive vice president for health policy at the nonprofit research group, the Kaiser Family Foundation. “But the losses in March and April have been astounding.”
Making matters more challenging, many hospitals say they are currently spending big sums to treat patients and keep their staff safe during the pandemic. There’s some reimbursement revenue associated with Covid-19 patients, but it’s typically not on par with what they typically make from elective procedures. And some hospitals, particularly those in rural areas, haven’t yet had a flood of Covid-19 cases. In addition, many patients are delaying primary care, and emergency rooms are less packed than usual as even patients with life-threatening conditions worry about exposure and avoid coming in.
“The places that will lose the money revenue are the ones that did everything right,” said Stephen Klasko, CEO of Jefferson Health, a health system in the Philadelphia region. “They stopped elective surgery earlier in the spring, they paid for the inflated costs of medical supplies for their staff, and rolled out testing as soon as they could,” he continued.
To provide a sense of the inflated numbers, Klasko said that medical gowns used to cost 22 cents prior to the pandemic, and are now selling or $11 or $12. “To give you a sense of costs, just our hospitals use up to 15,000 to 20,000 of these gowns alone per day,” he said.
That situation is not sustainable for long. Some hospitals are laying off staff, cutting hours for medical providers, and even filing for bankruptcy. The federal government has set aside some assistance, but reports show that it’s far from enough and some of the poorest hospitals are getting bypassed altogether.
Recovery could take years
The current situation has exposed some of the most gaping problems of the U.S. health economy, medical experts say.
The system is fragmented, and payment is for the most part based on procedures, not patient outcomes. That kind of system will struggle during a pandemic.
“The way that hospitals can survive in the messed up system is the recognition that you see a lot of patients where you lose money but do the right thing, like those on Medicaid and Medicare — and you make up for it in elective procedures,” said Klasko. “What the coronavirus pandemic did is it laid bare the problems of the current system, including the broken supply chain that we’re relying on to treat the critically sick.”
“If hospitals are preserving capacity to prepare for a potential increase in Covid-19 patients, they aren’t getting paid,” said Dr. Robert Mittendorff, a health care investor at Norwest. “But who is getting paid: the insurers.”
So while hospitals are struggling financially, health insurers are seeing a bump in revenues. As people delay elective surgeries and avoid preventative care during the pandemic, declines in spending have more than offset the added costs of paying for COVID-19 care.
Worse yet, experts say that it could take years for hospitals to bounce back.
In the coming weeks, hospitals across about 20 states are starting to ramp up surgical procedures, and will begin going through the massive backlog of patients needing care.
But the doctors won’t be able to treat these patients at typical capacity until there are proven treatments or a vaccine for Covid-19. To maintain social distancing, they’ll likely take in patients at a 30 to 40 percent normal levels, and will face some tough decisions about which of their patients to treat first.
“The average not-for-profit hospital system that was running at about 1 to 2 percent net operating margin,” said Dr. Klasko. “Let’s say it takes 12 to 18 months to recover the volumes, but then you have to make up the revenue that’s been lost for months. That could be three to four years.”