New analysis shows dramatic COVID-19 financial impact on hospitals and health systems
A new analysis prepared by Kaufman, Hall & Associates, LLC and released by the American Hospital Association (AHA) highlights the dire impact of the COVID-19 crisis on the financial health of hospitals and health systems, according to a press release.
Without further government support, margins could sink to -7% in the second half of 2020, according to the analysis, with half of all hospitals operating in the red. Other highlights from the analysis include:
- Without CARES Act funding, hospital margins would have been -15% in the second quarter of 2020. However, even with these funds, hospital margins are still expected to drop to -3% in the second quarter of 2020. Before COVID-19, the median hospital margin was a modest 3.5%.
- In the most optimistic scenario, which assumes a slow and steady decrease in COVID-19 cases, median margins could be -1% by the fourth quarter of 2020.
- Under another scenario that assumes periodic COVID-19 surges similar to the current case increases, margins could sink to -11%.
“Heading into the COVID-19 crisis, the financial health of many hospitals and health systems were challenged, with many operating in the red,” said Rick Pollack, AHA president and CEO. “As today’s analysis shows, this pandemic is the greatest financial threat in history for hospitals and health systems and is a serious obstacle to keeping the doors open for many. While we appreciate the support from the Administration and Congress, we need further help to stay afloat to continue our mission of caring for patients and communities.”
For any organization a positive operating margin is essential for long-term survival. Positive operating margins allow hospitals and health systems to invest in new facilities, treatments and technologies to better care for patients and communities. It also helps ensure they can attract and retain frontline caregivers and other critical staff and purchase personal protective equipment (PPE), drugs and other necessary supplies and equipment. The majority of a hospital’s expenses are labor and supply and equipment costs.
Previous reports from the AHA have also shown the tremendous strain the virus is placing on hospitals and health systems. A report from last month estimates a minimum of $120.5 billion in financial losses, due in large part to lower patient volumes, from July 2020 through December 2020, or an average of $20.1 billion in losses per month. These estimates are in addition to the $202.6 billion in losses the AHA estimated between March 2020 and June 2020 in a report released in May. This brings the total estimated losses for the nation’s hospitals and health systems to at least $323.1 billion in 2020.
