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May 27, 2020

Covid-19 hospital funding programs prompt confusion and controversy

Daily Briefing

    In recent weeks, the federal government has dispersed hundreds of billions of dollars to help hospitals and health systems cope with the new coronavirus—but some providers have struggled to understand the complicated rules governing the spending programs, while others who have accepted funding have become the targets of controversy.

    How Covid-19 will impact the financial outlook for the health care industry

    Why hospitals and health systems are in a deep financial hole

    U.S. hospitals and health systems are facing significant declines in revenue due to the new coronavirus. A recent report from Kaufman Hall found that median hospital operating margins fell to -29% in April.

    One reason for the decline is that, to prepare for an onslaught of Covid-19 patients, CMS encouraged hospitals and private practices to cancel elective surgeries. Further, many primary and urgent care providers are seeing declining visits as patients skip routine or nonessential care. While some providers have pivoted quickly to seeing more patients via telehealth, many have nonetheless faced a decline in patients and, ultimately, revenue.

    Many hospitals want federal support—but are worried about rules and regulations

    In an effort to keep providers afloat, the federal government in recent weeks has allocated hundreds of billions of dollars in grants and loans through systems such as FEMA reimbursement, the Paycheck Protection Program, and the CARES Act provider relief grants.

    But each funding program comes with its own rules and regulations—making it difficult for hospitals to ensure they are complying with all of the requirements, the Times reports.

    For instance, hospitals that receive CARES Act grant funds cannot balance-bill patients for Covid-19 care and must file quarterly reports to HHS detailing how the funds were used. The CARES Act grants do not have to be repaid, but they must be used to cover coronavirus-related expenses or revenue losses. Meanwhile, funds received through the Medicare accelerated payment program, which was expanded under the CARES Act, must be repaid within 13 months or else an interest rate of more than 9% will be applied.

    The rules and regulations are particularly challenging for small hospitals, which may not have robust compliance procedures or accounting departments.

    For instance, Magnolia Regional Medical Center in Arkansas has an administrative team of only three people, and after furloughing some of its accounting staff in May, the hospital has yet to develop a formal plan to track federal funds.

    "There are so many emails from everyone and their brother about different grants, and about what's available in the grants, and their stipulations and requirements," said Magnolia CEO Rex Jones.

    The complexity of the payment systems has left some hospitals wary of applying for new funding programs, especially programs that require repayment, according to Modern Healthcare. "We are not looking to add another liability," Stamford Health CFO Michael Veillette said.

    Controversy emerges around some hospitals' receipt of federal funding

    In addition, a news report in the New York Times raised controversy by noting that some federal distribution formulas don't take into account hospitals' existing resources, meaning that some hospitals have received significant funding despite their cash reserves.

    For instance, the 150-hospital health system Ascension Health, which according to the Times operates with $15.5 billion in cash, received at least $211 million in federal funds. Nick Ragone, a spokesperson for Ascension, said the funding "facilitated our ability to serve our communities during this unprecedented time" and enabled the health system to avoid furloughs and layoffs.

    Providence Health System—which owns 51 hospitals and, according to the Times, holds nearly $12 billion in cash—received more than $500 million in government funds. Providence, however, noted that it lost $179 million in April, and said the federal funds are helping to prevent furloughs. "The pandemic isn't over," said Melissa Tizon, a company spokesperson. "We need to be financially stable for the next possible wave."

    For smaller health systems, cash shortfalls are become urgent

    Many smaller health systems and rural hospitals similarly say that federal funds aren't adequate to cover their revenue shortfalls—and many don't have a cash cushion to fall back on, the Times reports.  

    St. Claire HealthCare, a rural hospital system in Kentucky, which saw surgeries drop by 88% during the epidemic, received $3 million from the federal government in April, which CEO Donald H. Lloyd II said would likely cover only two weeks of payroll. Similarly, Jennifer Welander, CFO of St. Charles Health System, said the $14.5 million the health system received through the CARES Act's provider relief fund barely covered two weeks of operations, given that the system lost up to $1 million per day in late April. 

    Harris Health System, which treats mostly uninsured patients, lost about $43 million in patient revenue, and has received only about a quarter of that from federal grants. Unlike larger health systems, CEO Esmaeil Porsa said, Harris doesn't have a lot of money in reserve.

    "Whatever cash we have we're going to pour into services," Porsa said (Cohrs, Modern Healthcare, 5/23; Drucker et al., New York Times, 5/25; Haefner, Becker's Hospital CFO Report, 5/26).

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