39% of Hospitals to Operate in Red Despite Vaccine Rollout

More hospitals will operate in the red in 2021 even with a smooth vaccine rollout and reduced COVID-19 hospitalizations, the American Hospital Association (AHA) reports.

An analysis prepared by Kaufman Hall for the hospital industry group found that 39 percent of hospitals will negative operating margins under the most optimistic COVID-19 scenario—significantly higher than the 25 percent of hospitals prior to the pandemic.

Under this scenario, hospital operating margins will level off at about 10.5 percent of a pre-pandemic baseline despite some recovery through the third quarter.

Half of hospitals would operate in the red under the most pessimistic scenario, with median margins down by 80 percent compared to the pre-pandemic baseline, the analysis showed.

For rural hospitals, the outlook is even more problematic. The most optimistic scenario would result in a median margin that is 38 percent below the pre-pandemic baselines, but that percentage would rise to a 100 percent decline under the most pessimistic scenario.

“We have not bounced back in terms of maintaining financial stability,” Rick Pollack, AHA president and CEO, said on a call with media on Tuesday. “And — just as importantly — we are being set back in our ability to care for the sick, injured and keeping people healthy.”

A positive operating margin is crucial for any business to survive the long-term, researchers said. But for hospitals, in particular, positive margins enable investments in new treatments, innovative technologies, clinicians and other staff, and more facilities.

A positive operating margin would also allow hospitals to build reserves in preparation for an uncertain future after the pandemic, researchers added.

Already, hospitals are projected to lose between $53 billion to $122 billion in revenue this year because of the effects of the COVID-19 pandemic, an analysis released last month showed.

And similar to yesterday’s analysis, just how much hospitals will lose will depend on factors, such as recovery of hospital volumes, COVID-19 vaccine progress, and declines in COVID-19 cases.

The most optimistic scenario assumes that hospitals experience a consistent, complete recovery of patient volumes, vaccine distribution and administration go smoothly, and the country faces a continued ramp-down of COVID-19 cases. The most pessimistic scenario assumes slow, partial recovery, delayed vaccine rollouts and continued logistical challenges, and cyclical surges of COVID-19.

President Joe Biden recently announced that the administration has met its goal of 100 million vaccine doses as of March 19—much sooner than expected.

However, CDC Director Rochelle Walensky, MD, recently warned of “another avoidable surge” of COVID-19 this spring as new variants of the virus spread as states relax mitigation measures, such as mask-wearing, social distancing, and avoiding crowds.

"As I've stated before, the continued relaxation of prevention measures while cases are still high and while concerning variants are spreading rapidly throughout the United States is a serious threat to the progress we have made as a nation," Walensky said at a White House briefing on Monday.

“Increasingly, states are seeing a growing proportion of their COVID-19 cases attributed to variants.,” Walensky added, estimating that 52 percent of cases in California, 41 percent in Nevada, and 25 percent in Arizona are attributed to the newly identify variant B1427/B1429.

Hospitals are still struggling to fight the novel coronavirus nearly a year later.

“Salary costs are way up, pharmacy costs are way up, and we continue to see acceleration in our supply chain expenses as well,” Scott Wester, president and CEO of Our Lady of the Lake Regional Medical Center in Louisiana, said on the AHA media call.

Additionally, Cliff Megerian, MD, CEO of University Hospitals Health System in Cleveland, said declining revenue combined with rising costs for personal protective equipment and other resources for COVID-19 patients “impacted our income by nearly $500 million. We are sincerely appreciative of the money that we see from the [Coronavirus Aid, Relief, and Economic Security] Act and the reimbursements from FEMA, but in all honesty, combined it buffered only 38 percent of that $500 million shortfall.” 

Hospital leaders are calling for more financial support, including legislation that would prevent over $36 billion in Medicare spending cuts as a result of the latest COVID-19 relief package.

The $1.9 trillion package signed into law earlier this month provided targeted relief for healthcare providers, including $8.5 billion for rural providers. However, it did extend a temporary suspension of the Medicare sequester, an annual two percent cut meant to reduce Medicare spending.

The package also included statutory spending cuts, including up to four percent across-the-board Medicare spending reductions.

Provider groups have called on lawmakers to reverse the cuts and extend the Medicare sequester moratorium to protect the healthcare system from devastating financial losses, which they say could impact vaccine rollout efforts.

“It is critically important that Congress act as soon as possible to avoid real cuts in payments to providers on the front lines while we’re still dealing with a once-in-a-century pandemic that remains a national health emergency,” Pollack said.