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May 17, 2022

Covid-19 relief was a 'lifeline' for financially struggling hospitals

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    Throughout the pandemic, hospitals saw significant losses in their operating margins—but overall profit largely remained steady due to federal Covid-19 relief funds, according to a new study published in JAMA Health Forum.

    How the pandemic impacted hospitals' margins

    For the study, researchers from the Johns Hopkins Bloomberg School of Public Health used data from RAND Corporation to compare the annual operating margins, overall profit margins, and other nonoperating income of 1,378 hospitals between 2016 and 2020.

    Overall, the researchers found that the hospitals' mean operating margin changed from a loss of -1% in 2019 to a loss of -7.4% in 2020. In addition, hospitals' mean share of other nonoperating income increased from 4.4% in 2019 to 10.3% in 2020.

    However, hospitals' mean overall profit in 2020 was 6.7%, similar to figures seen in the years before the pandemic. Some hospitals, particularly government, rural, or smaller hospitals, also saw higher mean overall profit margins in 2020 than in 2019. Among government hospitals, mean overall profit margins grew from 3.7% in 2019 to 7.2% in 2020. Similarly, rural hospitals saw their profit margins increase from 1.9% to 7.5% during the same time, while smaller hospitals saw their profit margins increase from 3.5% to 6.7%.

    According to the researchers, federal Covid-19 relief funds likely helped offset hospitals' higher operating margin losses and stabilize their overall profit margins. Ge Bai, a professor at the Bloomberg School's department of health policy and management and an author of the study, said the relief funds were a "lifeline" for financially struggling hospitals.

    Hospitals request more Covid-19 relief funds

    Currently, many hospitals are still seeing significant losses to their operating margins, particularly as they grapple with labor shortages and growing inflation.

    For example, AdventHealth reported a $417.7 million net loss in the first quarter of 2022. Despite the health system seeing its revenue increase, its expenses also grew by 15% to $3.7 billion. Overall, AdventHealth saw an operating loss of $46.8 million and an investment loss of $372.2 million at the end of the first quarter of 2022.

    Similarly, Kaiser Permanente reported a net loss of $961 million, including an operating loss of $72 million and a non-operating loss, including investments, of $889 million. The health system's overall expenses increased 9.5% to $24.3 billion in the first quarter of 2022.

    In response to hospitals' rising expenses and growing financial challenges, the American Hospital Association (AHA) in January asked the federal government for an additional $25 billion in Covid-19 relief funding. So far, HHS has released an additional $2 billion in funding for hospitals.

    "America's hospitals and health systems, and our caregivers, have been on the front lines in fighting the pandemic for over two years now, facing numerous challenges along the way," said Rick Pollack, AHA's president and CEO. "While we have made great progress in the fight against the virus, … we are not out of the woods yet when it comes to addressing the need to repair and rebuild our hospitals."

    "We continue to urge Congress to provide additional support to address these challenges, including by reversing harmful Medicare cuts, replenishing the Provider Relief Fund, granting flexibility on accelerated and advance Medicare repayments, and extending or making permanent critical waivers that have improved patient care," he added. (Halpert, Forbes, 5/13; Paavola, Becker's Hospital CFO Report, 5/12; Wang et al., JAMA Health Forum, 5/13)

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