Some hospitals could increase their profits in 2020 compared to the year before despite the financial blow taken across the industry from the coronavirus pandemic, according to a congressional Medicare commission.
The Medicare Payment Advisory Commission, or MedPAC, presented data at a Sept. 3 virtual meeting showing that federal stimulus money and cost-cutting largely offset pandemic-related losses seen by for-profit hospitals in the second quarter. While federal stimulus money helped not-for-profit hospitals offset about 50% of revenue losses, these facilities were unable to put in place the same cost-cutting measures and did not see the same financial gains.
For example, operating profit margins of four large for-profit systems studied by MedPAC increased between 1% and 14% in the second quarter compared to 2019. Meanwhile, the operating profit margins of three not-for-profit systems ranged between -13% and 5% of the prior year's mark.
Not-for-profit systems also saw operating income drop by approximately $621 million compared to 2019, while the for-profit systems' increased by $634 million.
The disparity was found despite the system types seeing similar year-over-year revenue declines; patient revenue dropped by approximately $1.6 billion, or 17%, at not-for-profit systems and $3.6 billion, or 15%, at for-profit systems.
MedPAC is a congressional advisory commission for Medicare, a federally run health insurance program that primarily serves people over 65 and people with end-stage renal disease. The commission offers payment and regulatory recommendations to Congress in annual March and June reports. MedPAC does not have legislative authority.
'Where does the money go?'
Hospitals have been struggling in 2020 as the industry largely stopping elective care as the pandemic accelerated across the U.S. The strategy was used to help stop the spread of the virus and conserve resources that were at risk of shortages. However, hospitals lost a highly lucrative business line in the process.
Congress approved $175 billion in emergency relief funds in two separate pieces of legislation to help offset the losses experienced by healthcare providers. The congressional funding is in the form of grants and does not need to be paid back.
The hospital industry would have lost between $20 billion and $30 billion in profits in April absent the federal grant money, according to MedPAC estimates. The American Hospital Association, an industry trade group, previously expected losses of $50.7 billion.
Three leading U.S. for-profit hospital companies — HCA Healthcare Inc., Universal Health Services Inc. and Tenet Healthcare Corp. — all reported significant declines in elective care throughout March, April and into May. Each company remained profitable in the second quarter, with federal dollars largely propping up the companies.
Furthermore, each company reported that volumes were climbing back to pre-pandemic levels in June, and some regions were seeing volumes grow compared to pre-pandemic levels.
MedPAC estimates that approximately $92 billion in already-enacted grants will be directed to hospitals, but funding will vary by hospital. The not-for-profit systems booked about $782 million in emergency funding in the second quarter, offsetting about 50% of their revenue losses, according to the commission. Similarly, the for-profit systems received about $2 billion in the second quarter, offsetting about 56% of their losses.
The discrepancies in second-quarter profit margins may be due to the different ways the system types were hit by and responded to the pandemic. The for-profit systems cut expenses by about $2.3 billion, or 65%, compared to 2019, while the not-for-profit systems cut expenses by $65 million, or 1%, according to MedPAC.
Along with geographical variation, the types of patients that for-profit hospitals are serving compared to not-for-profit hospitals could be behind the disparity in cost-cutting measures, according to MedPAC commissioner Jaewon Ryu.
"[For-profit hospitals'] ability to quickly adapt from a cost structure or cost reduction standpoint is fundamentally different than folks who are really grappling with populations that are vulnerable, that have greater needs, and trying to manage the pandemic in light of that," Ryu said.
The Medicare Payment Advisory Commission discussed the impact the coronavirus has had on not-for-profit and for-profit hospitals at a Sept. 3 meeting.
The variation across hospitals and geographies means understanding the hospital industry's overall financial condition in the second quarter is difficult, said Jeffrey Stensland, a principal policy analyst with MedPAC.
Several commissioners acknowledged that the presentation was helpful to understand the impact the crisis has had on the industry but said more granular data is needed to understand how the pandemic is specifically affecting different hospital and provider types, and also the Medicare program.
"It should be noted how quickly and fully the Medicare program responded to try to get money in," MedPAC commissioner Pat Wang said. "I think the next question, though, is where does the money go?"
The commission's presentation also showed how COVID-19 was disproportionately hurting Medicare beneficiaries, many of whom are over 65 and more vulnerable to the virus. About 80% of all deaths associated with the virus in the U.S. are people who are 65 years of age or older, and over 40% of deaths are among residents of nursing homes and assisted living facilities, according to the presentation.
Over 6.1 million people have been infected by the virus in the U.S. as of Sept. 3, resulting in at least 186,185 deaths, according to Johns Hopkins University's Center for Systems Science and Engineering.