COVID-19 Federal Relief Funds Helped Offset Hospital Financial Losses

Despite declining operating margins, overall hospital profit margins remained stable in 2020, suggesting that federal relief funds helped offset financial losses for hospitals during the COVID-19 pandemic, according to a study published in JAMA Health Forum.

The pandemic put pressure on hospital operations and finances as facilities pivoted from non-urgent care and elective procedures to caring for large volumes of COVID-19 patients.

Congress passed the Coronavirus, Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program and Health Care Enhancement Act to offer hospitals financial relief. These acts provided $175 billion in emergency funding for hospitals and healthcare organizations.

Researchers examined 2020 Medicare Cost Reports for 1,378 Medicare-certified general acute care hospitals to determine if the federal funds helped counteract the financial losses from the pandemic. The study compared 2020 data to data from January 2016 to December 2019.

The mean operating margin of the hospitals fell from -1.0 percent in 2019 to -7.4 percent in 2020. Federal relief funds did not impact operating margins, which are based on net income from patient services and patient revenue.

Non-operating income increased from 4.4 percent in 2019 to 10.3 percent in 2020, while the mean overall profit margin in 2020 remained similar to prior years at around 6.7 percent. Federal funds affected profit margin, as it reflects net income from all sources and total revenue.

Certain hospitals saw higher mean overall profit margins in 2020 than in 2019, the study found.

For example, government hospital profit margins increased from 3.7 percent to 7.2 percent between 2019 and 2020. Profit margins at rural hospitals rose from 1.9 percent in 2019 to 7.5 percent in 2020, while profit margins at smaller hospitals increased from 3.5 percent to 6.7 percent.

These hospitals tend to be more financially vulnerable and received federal funds larger than their scales of operations, which contributed to their higher overall profit margins in 2020.

The hospitals included in the primary analysis had fiscal years starting on January 1, but researchers also looked at a subset of 785 hospitals whose fiscal years began on July 1. These hospitals experienced operating margin declines during fiscal year 2019, as the last four months occurred during the pandemic.

Overall profit margins remained stable in 2019 and increased substantially in 2020 since these hospitals received relief funds during fiscal years 2019 and 2020, the study noted.

Although hospitals received federal relief funds during the pandemic that helped offset financial losses, health systems are still facing financial struggles in 2022.

In March 2022, the American Hospital Association (AHA) urged Congress to provide hospitals and health systems with additional financial support as they continue to treat high volumes of COVID-19 and non-COVID-19 patients.

Hospitals had a rocky financial start to the year. During the Omicron surge, hospitals saw declining revenue, operating margins, and outpatient volumes in January 2022. Additionally, operating margins remained negative for three consecutive months.

Hospitals experienced some relief in March, seeing higher revenues and lower expenses, but labor expenses increased substantially due to reliance on contract labor.