Michigan’s 10 top hospital systems are expected to receive $1.7 billion in COVID-19 relief grant funds from the federal government and $2.7 billion in Medicare advanced reimbursement loans that must be paid back by the end of the year.
Several health system executives told Crain’s the $4.4 billion will not cover financial losses incurred by the coronavirus pandemic through June as measured by lost revenue from elective procedures and surgeries and increased expenses for supplies, additional personal protective equipment and hazard pay.
But if there is a second wave of COVID-19 infections this fall, as nearly all public health and infectious disease expert predict, Michigan’s residents and businesses could face another round of costly shutdowns and hospital, nursing homes, physician and dentist offices and other providers could also absorb potentially even greater financial losses.
Of the 10 systems, Southfield-based Beaumont Health is set to receive the most funding from the $175 billion contained in two COVID-19 relief funding bills: The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act that were approved in late March.
Beaumont will receive $828 million, including $321.2 million in grant funds and $506.8 million in loans, according to data collected by Good Jobs First and provided by the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services as of June 26..
Henry Ford Health System will receive $807.7 million, including $399.7 million in grant funding and $408 million in loans, said system officials. Ascension Michigan has received $645.1 million, including $242.6 million in grants and $402.5 million in loans, said federal data, said federal data.
After Beaumont, Henry Ford treated the second most COVID-19 patients in Southeast Michigan. Ascension Michigan operates 14 hospitals in Michigan, including flagship St. John Hospital in Detroit, the hospital with the third most COVID-19 cases in metro Detroit.
So far, the coronavirus pandemic has claimed 477,000 lives worldwide and more than 123,000 in the U.S., including 6,133 in Michigan. COVID-19 kills about 3.4 percent of those infected, far higher than the 0.1 percent deaths for seasonal influenza, according to the World Health Organization.
The allocation of funds to systems and other health care providers was not based on numbers of COVID-19 patients treated, but on a formula based on the providers’ amount of Medicare fee-for-service revenue and total net patient revenue.
Despite the massive influx of federal funds that appears to have stabilized health systems and minimized employee layoffs and furloughs, Sen. Gary Peters of Michigan issued a report June 23 that concluded Michigan so far has received nearly $130,000 less per patient than the national average of $160,286.
He said the difference in amounts appears to be because Congress didn’t consider COVID-19 “hotspots” like metro Detroit when it allocated the funds. For example, North Dakota reported the third-lowest number of coronavirus cases but received $327,570 per case compared with Michigan’s $31,045 per case.
Peters also said 41 percent, or $72 billion, of the funding Congress approved through the CARES Act has not been distributed. He said delays have contributed to the health care industry’s financial crisis, which has forced at least 260 hospitals nationwide to temporarily furlough or permanently lay off health care workers, including many in Michigan.
“Places like Detroit did not receive the funds despite being hit very hard and that’s simply unacceptable,” Peters said Tuesday in a conference call with reporters. Funding delays have “increased … the number of people who are laid off or are on furloughs and is digging a deeper hole in the financial picture for hospitals and other health providers across the country.”
Robin Damschroder, CFO with Detroit-based Henry Ford, which operates six hospitals in Southeast Michigan and a 1,900-physician medical group with more than 32 health centers, said executives, doctors, nurses and the entire 30,000-plus workforce are preparing for a second wave to hit this fall, although the hope is that it will only be half as bad as the first wave that started in early March.
Because of COVID-19, Damschroder said Henry Ford projects lost revenue of nearly $500 million by June 30, but it could break even this year if the second wave of COVID-19 less than the first. In 2019, Henry Ford reported net income of $138.7 million on total revenue of $6.3 billion for a 2.2 percent margin.
“Even if wave two is half of size of wave one, that’s another $200 million in revenue loss” at a minimum for the second six months of 2020, Damschroder said, adding Henry Ford could lose up to $800 million in revenue if the second wave is as large as the current one.
“We are very anxious about what will happen,” she said. “We are very prepared and confident we can keep people safer. But at the same time, we don’t know what (COVID-19) is going to bring.”
Most public health experts believe COVID-19 infections have been increasing nationally and predict a second wave will hit this fall without the protection of a vaccine, which is not expected to be mass produced until mid-2021.
Michigan is one of several states that saw a consistent decline the past month and flattening of infections, hospitalizations and deaths. However, late last week daily COVID-19 cases started to rise again past 300 for the first time in three weeks.
Michigan hospitals and businesses have been reopening with certain safety restrictions that include health screening, medical mask wearing, handwashing and social distancing.
Bret Jackson, president of the Economic Alliance for Michigan, said he is concerned that hospitals will use the COVID-19 related revenue losses to pass along higher costs to employers. Another concern is that the money hospitals have received from the CARES Act will be used to purchase struggling physician practices or expand health care operations.
“It was important for Congress to support these facilities and medical groups that were restricted from taking care of patients,” Jackson said. “What I am concerned how they will cover the lost revenue and that somehow the employer community will be the target of hyper-inflation of prices.”
Executives at Beaumont, Henry Ford and Trinity Health told Crain’s that none of the funds received by federal or state sources will be used to purchase struggling physician practices, hospitals or otherwise used to expand market shares in inpatient or outpatient areas. The CARES Act did not directly prohibit such business moves.
But there are questions whether the systems needed to furlough or lay off as many employees and health care workers as they did. By a Crain’s analysis, more than 10,000 health care workers, including doctors and nurses were furloughed or laid off in Southeast Michigan shortly after the federal funding bills were approved.
Officials at Beaumont, Henry Ford and Trinity Health said they made the right calls in furloughing employees and staff as many health care services were drastically scaled back and patient care declined by more than half. They said they needed to reduce expenses because funding for the relief bills were weeks away from reaching their bank accounts.
“Even though our revenue went down 50 percent in the state of Michigan, we furloughed only 10 percent of our workforce (of 28,000 employees in early April). So we did not match dollar for dollar at all,” said Rob Casalou, president of the Michigan, Georgia and Florida markets with Trinity Health, a Livonia-based system of 93 hospitals.
Health care experts interviewed by Crain’s also say national hospital association lobbying efforts are underway to ask Congress to forgive the $2.4 billion in advanced Medicare payments given to the 10 Michigan health systems. Overall, Michigan hospitals received about $2.94 billion of the total $78.4 billion nationally, said CMS.
Casalou said he favors either complete loan forgiveness or another round of financial grants for hospitals.
“We bore the brunt of this pandemic and the medical costs side,” Casalou said. “We did it by giving up all of our other work and we ended up losing hundreds of billions of dollars in the process. We are looking toward the government for help in that regard and the bills that they passed so far. And that’s inadequate in our in our estimation.”
Casalou said it would be easier for Congress to simply forgive the Medicare advanced payments received already by the health systems since the funding has been distributed. He said he also worries about a second wave of COVID-19 this fall.
“If they just forgive them, they don’t have to then generate another bill with another tranche and then figure out how to distribute it,” he said. “It would absolutely put us in much stronger shape in terms of being able to weather and being able to come out of this.”
So far, Casalou said Trinity Health Michigan has received far $132 million in grant funding. Federal data shows Trinity Michigan will receive $165 million with the state of Michigan kicking in another $2.7 million in relief funds. The Catholic system also received $219.5 in Medicare pre-payments.
“We didn’t use it for any other purpose than to pay the expenses that we needed to incur as well as to offset lost revenue,” said Casalou. “We put a halt on all of our capital spending in everything to conserve cash.”
Casalou said Trinity Michigan also received an additional amount of funds because Congress deferred a 2 percent Medicare cut related to sequestration and a 20 percent add-on to Medicare patient reimbursement who had COVID-19. “That is helpful, although I assume it is temporary,” he said.
Henry Ford received a total of $39 million from Medicare for other COVID-19 relief funding, including sequestration cuts and Medicare payment boosts, Damschroder said.
During the first two months of the pandemic, Trinity Health Michigan experienced a 50 percent drop in patient activity, resulting in an operating loss of $50 million in March and an $84 million loss in April.
As of mid-June, Trinity Michigan hospitals treated 1,986 patients with 428 deaths, far fewer than Beaumont, which treated 8,049 patients with 906 deaths.
In May, Trinity Michigan lost another $53 million, counting the money saved with the furloughed workers. By June 30, the end of Trinity’s 2020 fiscal year, the system projects to drop another $20 million even with patients starting to return for a four-month loss of $207 million on operations.
“We were $75 million ahead (going into the third quarter ending March 30), but we lost all that. Without (the federal grant and loan money) we would be deep into the red,” said Casalou, adding he expects Trinity Michigan to post a net loss for fiscal 2020.
But Casalou said Trinity expects to break even during the three-month period ending in September 30 and for the first six months of fiscal 2021 by Dec. 31 be in the black.
“We will try to recover as much of our volume as we can and with some restructuring and watching our expenses we plan to be in the black for fiscal 2021,” Casalou said. “Starting next January through June (2021) we hopefully will be closer to our normal. … If they forgive our loans, that would definitely put us in the black.”
Through June 15, Henry Ford said it had treated 3,947 patients. But as the numbers of patients hospitalized with COVID-19 increased, patients with other medical issues were asked to postpone treatments. Last week, Henry Ford only had 16 hospitalized COVID-19 patients.
“When we got to the end of March, our revenue dropped by 25 percent. Our weekly cash on hand dropped by almost 50 percent in five weeks,” Damschroder said.
The federal COVID-19 relief payments of $807.8 million helped keep Henry Ford financially afloat.
“I was using that cash to pay payroll, supplies, pharmaceuticals,” she said. “If we didn’t receive that cash from Medicare, I (might have had) to go into our investment portfolio.”
Henry Ford and Trinity Michigan have recalled more than half of furloughed employees as patient volume has picked up.
“We’re bringing them back and this point we are about six or eight weeks ahead of the schedule that we first had when we put the furloughs out there,” Damschroder said. “We think that that is good news.”