Before the pandemic, many providers already were operating on thin margins, with enough cash and patient receivables to cover only three to four months of operations, according to an analysis of hospital finances by PwC’s Health Research Institute (HRI).
Deferred procedures and visits have led to depleted revenues and the payer mix is shifting because of swelling unemployment; fixed costs, however, remain static. Many solutions that worked in the past—rethinking service mix, bumping up capacity—are ineffective in the COVID-19 period. The American Hospital Association (AHA) estimates that hospital losses between March 1 and June 30 of this year will total $202.6 billion.
Healthcare providers, in particular, have been challenged financially even as they scrambled to prepare for surges in COVID-19 patients. Adjusted discharges are down 13% year over year for March, a month that included just a few weeks of state shutdowns, according to the AHA.
Some rural hospitals, with less than two months’ cash on hand, fear they may have to close their doors. “If we’re not able to address the short-term cash needs of rural hospitals, we’re going to see hundreds of rural hospitals close before this crisis ends,” Alan Morgan, who runs the National Rural Health Association, told Modern Healthcare.
Many hospitals likely were operating on thin margins when the pandemic hit. An HRI analysis of financial data primarily from fiscal 2018 and 2019 collected by the American Hospital Directory on 4,688 hospitals found that the national mean operating margin was less than −3%, with enough cash plus net patient accounts receivable to cover an average of nearly four months of operations.
Hospitals’ financial situations varied by region and by type. Focusing on days cash on hand, urban providers, which experienced some of the nation’s earliest, highest caseloads, could cover an average of about 45 days of operations in the fiscal years before the pandemic. Meanwhile, rural providers tended to have slightly more, an average of nearly 70 days cash on hand, according to HRI’s analysis. Rural hospitals, HRI found, tended to have much lower operating margins than their urban peers. They also tended to have less ability to cover debt.
Across most regions, private for-profit hospitals tended to have the lowest days cash in the fiscal years before the pandemic, as did urban and teaching facilities. On the debt side, HRI also found that large, national for-profit health systems and some academic medical centers maintained relatively large levels of undrawn revolving credit compared with their peers. And private, for-profit hospitals appear best equipped to service their debts, with coverage ratios greater than 1 or positive and among the healthiest operating margins. Other hospital systems tended to have debt service coverage ratios near or below zero, according to HRI’s analysis.