Hospitals will take $320B hit from COVID-19 this year, AHA says

Hospitals and health systems will lose over $320 billion in 2020 due to the COVID-19 pandemic, according to an American Hospital Association report Tuesday.

More than $200 billion in financial losses occurred from March to June. But the AHA expects hospitals to lose another $120 billion—about $20 billion per month—through year-end, mostly driven by lower patient volumes.

The report probably underestimates 2020’s total financial losses because “the analysis does not account for currently increasing case rates in certain states or potential subsequent surges of the pandemic occurring later this year,” the AHA said in a statement.

“Hospitals and health systems are in the midst of the greatest financial crisis in our history,” AHA CEO Rick Pollack said. “While we appreciate the support to date from Congress and the (Trump) administration, this report clearly shows that we are not out of the woods. More action is needed urgently to support our nation’s hospitals and health systems and front-line staff.”

According to the report, average inpatient volume is down about 20% compared with 2019, while average outpatient volume has slipped nearly 35% relative to last year.

“Most hospitals and health systems do not expect volume to return to baseline levels in 2020,” the AHA said in a news release.

The AHA’s report doesn’t account for hospitals’ direct COVID-19 treatment costs or other expenses like higher acquisition costs for drugs and non-PPE supplies and equipment.

Nearly all providers rely on payments closely tied to fee-for-service models. When the COVID-19 pandemic struck the U.S. in March, patient volumes fell off a cliff, dragging down hospitals’ revenue. The lack of fee-for-service revenue led many hospitals and group practices to lay off or furlough staff, slash office hours, cut pay, and delay or cancel investments, just as the crisis ramped up and the economy cratered.

Congress passed a series of financial relief packages to make sure providers would be able to keep their doors open during the public health emergency. But many hospitals and group practices have had trouble getting hold of the money, and some of the funds are starting to dry up. If the federal government doesn’t step up with more aid soon, hospitals and health systems will have to make more tough decisions.

In the long term, providers may shift more of their business to value-based arrangements and take on added financial risk to stabilize their revenue streams and guard against future declines in patient volume, which have proven catastrophic. Providers that rely more heavily on capitation and other value-based arrangements report that their businesses have experienced less financial distress than those dependent on traditional fee-for-service payments.

Experts say that while value-based payments aren’t a cure-all solution, the pandemic has shown that volume-based payments aren’t as safe as many providers thought.