By SCOTT PHILLIPS, Founder & Managing Director
DON BIVACCA, Managing Director
CLAIRE ACREE ROEBUCK, Director
Healthcare Management Partners
As Tennessee hospitals are consumed with the management of COVID-19 cases, the state’s hospitals … many already on shaky ground … are already feeling the brunt of financial stress from this pandemic, as staff and resources shift from traditional duties to combat the virus.
Financial stress comes from the direction to cease higher-profit elective surgeries – a practice enacted all over the country and signed into effect in Tennessee by Governor Bill Lee on March 23 – to allow for focused treatment of COVID. The drop in outpatient volumes in ambulatory care settings, including visits to Emergency Departments, is bringing healthcare systems to a point where it’s becoming more expensive to keep these settings open and running. While a lower surgical volume will work to slow the spread of the virus by limiting incoming patient traffic, it’s also slowing down revenue at a time when costs are increasing.
Those cost increases include staffing needs – as hospitals need additional personnel trained in ICU protocols to treat COVID patients, as well as expenses for overtime hours – converting beds to care for the critically ill, reducing employee burnout and monitoring staff and visitors for symptoms. Costs are also stemming from the salaries of ambulatory care workers whose departments aren’t receiving enough patients to make up that revenue. Hospitals are now looking to cut costs by reducing employee salaries by 25-30 percent, deferring 401k contributions and furloughing workers whose skills can’t be translated into an ICU setting until financial stability has been regained. Hospitals are also seeing costs rise from trying to supply staff with personal protective equipment (PPE) and the medical equipment to treat patients.
Increased spending will especially impact organizations that participate in payment models like Accountable Care Organizations (ACOs), as they will be held accountable for patients’ healthcare spending. According to an analysis from the National Association of ACOs (NAACOS), Medicare could suffer costs between $38.5 billion and $115.4 billion over the next year depending on how hospitalization rates progress.
A data analytics report from HMP Metrics revealed that Tennessee’s 152 Medicare-certified hospitals generate about $20 billion in revenue each year and about 30-40 percent of that revenue stems from elective surgeries. The state’s order to suspend non-essential procedures could result in a loss of about $504 million per month. In Middle Tennessee, that would equate to a loss of about $152 million per month, as the region’s 22 hospitals generate about $6 billion annually – about 30 percent of the state’s revenue. These figures may vary depending on the hospital and region, as critical access hospitals are not likely to have as many elective surgeries as others.
While the loss of profit from elective surgeries will impact hospitals in the short-term, these procedures will need to be rescheduled once the state has reached a point where healthcare systems can begin to accommodate other procedures. Many of these procedures treat conditions that need care – like knee and hip replacements – even if it’s not immediate, hospitals will have an opportunity to make up that lost revenue down the road.
Due to their size and number of incoming patients, hospitals in the Nashville metro area have a greater ability to weather the pandemic’s financial strain than their rural counterparts. If the pandemic continues at its current rate, data shows that most of Nashville’s hospitals can surmount the crisis for about four more months before other measures may need to be considered. This same data demonstrated that most of the state’s hospitals including those in rural areas can endure the financial hit from the pandemic for about 90 days before facing some significant financial challenges.
Rural hospitals will face a different kind of financial hit that stems from low patient volume, as smaller facilities without a large amount of ICU beds are likely to transfer COVID patients to urban centers that have greater access to needed equipment. While the rate of patient transfers, coupled with the inability to perform elective surgeries, will stifle revenue for rural hospitals, they should expect a bump from Governor Lee’s Small and Rural Hospital Readiness Grants, which will allocate a total of $10 million in grants to the rural hospitals across the state. Announced on April 6, the funds will be distributed from the state’s FY20 COVID-19 response appropriation and capped at $500,000 per hospital.
The Coronavirus Aid, Relief and Economic Security (CARES) Act, signed into law on March 27, will also provide some relief, with $100 billion designated for hospitals. According to the American Hospital Association, the designated $100 billion in funds averages out to about $108,000 per hospital bed across the country. The CARES Act allows hospitals to apply for funding for coronavirus-related expenses if they are diagnosing, testing and providing care for COVID-19 patients, as well as the ability for Medicare providers to access accelerated or advanced Medicare payments for 180 days of services not yet rendered based upon historical payment rates. Critical access hospitals, which cater to populations in remote areas, can request up to 125 percent in payments of what the hospital would have otherwise received, providing upfront payment to rural hospitals that need an immediate influx of cash. Hospitals that request accelerated Medicare payments will have up to 120 days until their claims are offset to recoup the funds and at least 12 months before they will need to repay any outstanding balance.
The federal government announced on April 3 that a portion of the $100 billion emergency fund for hospitals will also be directed to cover providers’ costs of delivering COVID-19 care for the uninsured. While more details on distribution are yet to be released, providers can expect to be reimbursed at Medicare rates. The package also offers an $8 billion cut in scheduled payment reductions that will help hospitals caring for large numbers of uninsured and Medicaid patients. Funding from the CARES Act will hopefully neutralize some of the revenue lost from elective surgeries, but it may not be enough should the pandemic continue as it is.
It’s important to note that hospitals across the state – rural, suburban and urban – are feeling the ramifications of depleted cash flows and the critical need to switch operational gears towards COVID treatment as part of the pandemic’s response. It’s essential that hospitals prepare for a potential surge in cases regardless if they end up seeing an influx in traffic as the weeks continue. Having a plan in place to treat patients or transfer them to larger facilities with a greater capacity for COVID-19 care is necessary to keep operations moving and prevent healthcare teams from feeling overwhelmed.
Looking ahead, action to establish a more defensive financial strategy that supports all the state’s hospitals will need to be taken to ensure that hospitals can better withstand the financial challenges that come from widespread pandemics. In the meantime, it is crucial that Tennesseans do their part to take hygienic precautions and practice physical distancing to help reduce the spread and keep Tennessee’s hospitals from being overwhelmed with patients. The sooner that hospitals can return to normal operations, the sooner they can take action to offset the financial hits from this pandemic.
Healthcare Management Partners (HMP) is a one of the country’s leading turnaround and consulting firms in the healthcare industry that specializes in assisting healthcare organizations experiencing current, or anticipated financial challenges, navigate their way to positive outcomes. Led by highly experienced, C-Level healthcare consultants, and empowered by data, HMP has a unique ability to not only quickly define and solve problems, but also lead the delivery of the right solutions. Scott Phillips is Founder & Managing Director, Don Bivacca serves as Managing Director and Claire Acree Roebuck is Director of HMP. For more information, go online to hcmpllc.com.