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Care providers may need $100B more as industry faces further COVID-19 losses

While Congress set aside $100 billion for healthcare providers impacted by the coronavirus pandemic, hospital representatives and experts believe that at least another $100 billion will be needed to prop up the industry.

As the outbreak continues to intensify in the U.S., hospitals and healthcare providers are experiencing financial losses due to the canceling of elective and non-essential services and also the need to ramp up staff and supplies in preparation for a possible surge in coronavirus patients.

Canceling non-emergent procedures — which is being used to stop the spread of the virus and conserve resources such as staff, supplies and hospital beds — has taken a lucrative business line away from the industry, said Rick Gundling, senior vice president of healthcare financial practices for the Healthcare Financial Management Association.

"It's a very big hit because so much of the non-emergent surgeries are also some of the ones that bring higher revenues to the facility to offset some of the emergency care, charity care, community benefit costs that a hospital does," Gundling said in an interview.

Provider revenues are likely to drop by 25% to 40% per month due to postponed or canceled procedures, straining cash flow significantly, according to an April 3 analyst report from Moody's.

Rising costs

Hospitals are also facing increased costs as facilities prepare for the spread of the virus, such as increased staffing outlays and emergency shipping and procurement expenses for any supplies with shortages, John Langenderfer, senior vice president and managing director of healthcare banking at Huntington Commercial Bank, told S&P Global Market Intelligence.

"Whether [facilities are] full or empty, there still are increased costs associated with this crisis," Langenderfer said.

Congress set aside $100 billion for providers in the Coronavirus Aid, Relief and Economic Security Act to help mitigate the effects of the crisis. Lawmakers are working on another relief bill that would include $75 billion for the hospital industry, according to multiple news reports.

The Federation of American Hospitals, an industry trade group, recently advocated for an additional $100 billion in emergency funds. And a trio of Democratic senators also supported an additional $100 billion for providers in an April 13 letter to the U.S. Department of Health and Human Services Secretary Alex Azar.

However, the next round of funds may need to be as much as $200 billion to truly offset losses, Gundling said.

The American Hospital Association, a national hospital representative, requested additional funds from Congress in an April 18 letter to President Donald Trump but did not specify an amount.

There have been at least 778,176 confirmed U.S. cases of COVID-19, the respiratory illness caused by the virus, and at least 41,575 confirmed deaths in the U.S. as of April 20, according to a tracker from Johns Hopkins University's Center for Systems Science and Engineering.

Industry sees slow market rebound

Leading hospital companies like HCA Healthcare Inc., Universal Health Services Inc. and Tenet Healthcare Corp. all saw slight rebounds as Congress finalized the $100 billion and as the Trump administration began distributing the money. Companies also saw bumps after plans for re-opening the U.S. economy were released by the White House.

All three companies saw a stock price decrease of over 4% when the market closed April 20. No company has seen its stock prices make it back to the same levels as before the pandemic took hold in the U.S.

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Along with relief funds, both Gundling and Langenderfer said the industry should be able to recapture some losses if elective procedures pick up later in the year.

The Trump administration released guidance on April 19 for how healthcare providers can restart elective or non-essential services. However, the guidance was for providers in low-impact states that are able to clear a number of requirements.

Canceling non-essential procedures can also impact patients. Elective does not mean that the surgeries can be postponed forever, as the services can range from removing a tumor in a cancer patient to a knee replacement, according to Gundling.

Targeted funding distribution

Another issue brought up by the hospital industry is not just the amount of funds but how those funds are to be distributed.

HHS released $30 billion funds April 10 based on past Medicare payments, partnering with UnitedHealth Group Inc. and UnitedHealth Group subsidiaries UnitedHealthcare Inc. and Optum Bank Inc. to get the money to providers.

Industry groups supported getting the funds out, but they said basing distribution on Medicare payments left out providers that served patients covered by Medicaid and other payers. The allocation method was also criticized for not targeting providers in areas of the country that have been hardest-hit by the pandemic.

While the distribution method left out some providers, it was necessary to get the funds out quickly, according to Gundling.

Seema Verma, the administrator for the U.S. Centers for Medicare and Medicaid Services, told reporters April 20 that the second tranche of funding will be going out soon and will target hard-hit providers. However, she did not go into detail about the allocation method and did not specify how much would be distributed.

The hospital industry has also pushed back on the Trump administration's plan to use a portion of the $100 billion to cover COVID-19 testing and treatment for people who are uninsured, which the nonpartisan Kaiser Family Foundation projected could cost hospitals between $13.9 billion to $41.8 billion.

Another financial option for providers seeing losses is accelerated or advanced Medicare payments. The CMS has distributed over $90 billion in advanced Medicare payments, according to Verma.

Langenderfer said that the payments do provide companies with more liquidity, but added that unlike the relief funds, the payments are loans that providers will need to pay back to CMS.