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May 7, 2020

Covid-19 could carry a $200B price tag for hospitals

Daily Briefing

    Covid-19, the disease caused by the new coronavirus, could cost hospitals $200 billion dollars over a four-month period, according to an American Hospital Association (AHA) report published Tuesday—resulting in a historic loss of revenue that is already having a detrimental effect on the U.S. economy.

    AHA report predicts $200B revenue loss for US hospitals

    For the report, AHA sought to quantify the short-term effect of Covid-19 on hospital finances by analyzing the:

    • Net financial impact of Covid-19 on hospitalizations;
    • Total revenue losses from canceled surgeries and procedure;
    • Non-treatment costs associated with purchasing personal protective equipment (PPE) to treat Covid-19 patients; and
    • Cost of support for frontline worker.

    Overall, AHA estimated the United States' Covid-19 epidemic will cost hospitals $202.6 billion in losses from March 1 through June 30, or an average of $50.7 billion per month. AHA noted various factors that will contribute to the financial losses. For example, AHA estimated the financial impact of Covid-19 hospitalizations from March 1 to June 30 will result in a $36.6 billion loss for hospitals and health systems. AHA noted that while the Covid-19 epidemic has increased some hospitals' patient load, it also resulted in widespread job losses that's increased the uninsured population.

    AHA also found the increased demand for PPE equipment during those four months will cost hospitals $2.4 billion, or approximately $600 million per month, in part due to increased supply costs.

    In addition, AHA estimated hospital will spend $2.2 billion on helping frontline health care workers with housing, transportation, childcare, and Covid-19 treatment throughout the U.S. epidemic.

    However, AHA estimated that the majority of the projected revenue loss, $161.4 billion, will come from canceled scheduled surgeries, outpatient treatment, and reduced ED services.

    AHA said the estimates are likely conservative as the analysis does not account for revenue loss associated with wages, drug shortages, non-PPE supplies, and equipment. AHA also said it assumed only half of hospitals and health systems would be able to provide additional support to health care workers such as housing and transportation, meaning the estimated revenue loss associated with that support is likely an underestimate.

    As the epidemic continues, AHA projected hospitals will "continue to see lower service use while treating Covid-19 patients beyond June 30, which would result in continued financial pressures," meaning the revenue loss from canceled surgeries could grow throughout the summer.

    What does this mean for the US economy?

    AHA in the report said, "The totality of these costs combined with the uncertainty of the pandemic's duration is certain to imperil hospital finances."

    CMS estimates that hospitals complying with guidance from policymakers by canceling elective procedures and increasing PPE are losing about $1 to $2 billion per day, leading some hospitals to resort to laying off staff, reducing hours, and filing for bankruptcy, CNBC reports. According to a calculation by Becker's Hospital Review, more than 200 hospitals have furloughed workers.

    "The places that will lose the more revenue are the ones that did everything right," said Stephen Klasko, CEO of Jefferson Health. "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." Klasko estimated that it could take hospitals "three to four years" to bounce back from the loss.

    This not only affects the health care sector's ability to treat patients, but has a negative impact on the U.S. economy at large, according to the Washington Post.

    The United States spends more on health care as a percentage of its economy than any other developed nation, but within the first three months of 2020, health care spending declined by 18%, which is the largest decline in spending since 1959, according to the Commerce Department.

    The reduction in spending proved to be the biggest factor behind a 4.8% decline in first quarter GDP, the worst decline in GDP since the Great Depression, according to the Commerce Department. Now, Morgan Stanley is projecting an even larger drop in second-quarter GDP at 37.9%.

     "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," Klasko said (Brady, Modern Healthcare, 5/5; King, FierceHealthcare, 5/5; Farr, CNBC, 5/5; Frankel/Romm, Washington Post, 5/4).

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