How Much Will the COVID-19 Pandemic Cost Hospitals?

Every day the number of confirmed COVID-19 cases rises, creating new challenges for the US healthcare system. Healthcare providers are scrambling to test and treat a sudden influx of patients presenting with COVID-19, while attempting to stop the spread of the highly contagious coronavirus.

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Supporting the delivery system is of the utmost importance at this time, but a major question looming over the entire healthcare system at this time is: How much will the COVID-19 pandemic cost?

The COVID-19 pandemic is already wreaking havoc on the economy. The UN’s Conference on Trade and Development estimates that the virus will cost the economy $1 trillion in 2020. Meanwhile, the Dow Jones Industrial Average recently saw its worst day since the “Black Monday” market crash in 1987.

An uncertain financial future awaits US companies, including many hospitals and health systems that rely on the capital market to fund key operations.

Hospitals and other providers have already warned the nation that operations cannot handle the increasing volume of patients presenting with COVID-19. The pandemic has also prompted many organizations to cancel or delay revenue-driving procedures such as elective surgeries to free up capacity.

Some hospital CFOs have reported that their operations could shut down in the coming weeks as many organizations struggle to make payroll and pay vendors the rising prices of supplies in short supply, including personal protective equipment.

President Trump signed a historic $2 trillion stimulus package to mitigate the financial losses from the COVID-19 outbreak in the US. The package included more than $100 billion in emergency funding to hospitals and other frontline providers, as well as other relief policies including a 20 percent Medicare rate increase for COVID-19 hospitalizations.

Will this be enough to prevent hospitals and other providers from financial distress and potential closure?

A new analysis from the non-profit FAIR Health breaks down what COVID-19 cases will cost hospitals. Leveraging one of the largest databases of privately billed health insurance claims, researchers from the organization analyzed proxy codes used by providers to estimate the costs for COVID-19 patients requiring inpatient stays.

They found that a hospitalized COVID-19 patient will incur an average of $73,300 in costs. However, the total average allowed amount per commercially insured patient is just $33,221.

In total, hospitalized COVID-19 patients are projected to cost the system between $362 billion to $1.449 trillion in charges, depending on the incidence rate of the infection in the US population, the study found. Estimated allowed amounts ranged from $139 billion on the low end to $558 billion on the high end.

A significant portion of confirmed COVID-19 cases will require hospitalization. A recent CDC report detailing outcomes among COVID-19 patients in the US from Feb. 12 to March 16, 2020, showed that between 21 and 31 percent of patients were hospitalized and 5 to 12 percent were admitted to an intensive care unit.

But the number of COVID-19 cases ending up in the hospital could total as much as 4.8 million patients, according to estimates from infectious disease experts shared with the American Hospital Association (AHA).

Hospitals will need help covering the costs of COVID-19 hospitalizations. An analysis of a proxy group of related patient cases found that an overwhelming majority of health systems are slated to lose an average of $2,800 per COVID-19 case if payers do not raise reimbursement rates for hospitalizations.

Many would lose between $8,000 and $10,000 per case, researchers stressed.

“The complexity of the patients is causing a decline in nurse staffing ratios as nurses and staff are required to help each other validate that their personal protective equipment (PPE) is properly fitted,” according to the analysis.

“Costs are also higher due to expanded cleaning regimens, PPE shortages, more frequent X-rays and CT scans, and overall higher supply and drug costs. Overall, it takes longer and requires more to care for these patients than even the proxy DRGs selected.”

Medicare is boosting Inpatient Prospective Payment System (IPPS) rates by 20 percent for COVID-19 hospitalizations.

However, the proxy group analysis showed that hospitals would still lose money with the Medicare payment bump, with most hospitals incurring a loss of about $1,200 per case.

“[M]any hospitals will not be able to survive the damage to their cash flow for longer than 60-90 days,” researchers stated. “Without additional financial relief from government or other sources, they will be forced to take decisive action to reduce costs such as dismissing/furloughing large numbers of non-clinical workers who are already overwhelmed converting hospital beds, maintaining equipment, and performing other non-clinical but essential jobs.”

Reimbursement rate changes would also need to come from Medicaid and commercial payers to keep providers afloat financially during the pandemic, researchers stated.

In addition to financial assistance, hospitals will also need help with managing their value-based portfolios.

Spending among Medicare accountable care organizations (ACOs) is set to increase between 6 percent and 18 percent because of COVID-19, according to a new analysis from the National Association of ACOs (NAACOS).

The analysis also projected overall Medicare spending to increase between $38.5 billion to $115.4 billion over the course of a year because of the COVID-19 pandemic. For Medicare ACO beneficiaries, spending could increase between $7.7 billion to $23.1 billion.

"We are just on the tip the iceberg of a global, public health pandemic that is out of ACOs’ control. We could see generated savings wiped out, massive penalties, and worst of all, ACOs dropping out of the program to avoid losses,” said Clif Gaus, ScD, NAACOS president and CEO.

“In short, COVID-19 threatens to derail adoption of alternative payment models and the movement to value-based care. We need policymakers to give assurance to ACOs that they’ll take appropriate steps to provide needed protection."

CMS has already relaxed quality reporting requirements for Medicare’s largest ACO program, as well as other value-based purchasing programs. The agency extended deadlines from March 31, 2020, to April 30, 2020, for providers in the Medicare Shared Saving Program (MSSP) and the Merit-Based Incentive Payment System (MIPS).

Providers who cannot meet the new deadline also will not be penalized. They will qualify automatically for the extreme and uncontrollable circumstances policy and receive a neutral payment adjustment in the 2021 payment year.

But more should be done to ensure providers in value-based purchasing models can continue to deliver advanced primary care, coordinated care, and other value-adding services during the public health crisis, NAACOS, American Hospital Association, American Medical Group Association, and others have say.

The groups recently called on policymakers to not only apply the extreme and uncontrollable circumstances policy, but also adjust financial benchmarks or performance year expenditures, hold clinicians harmless for performance-related penalties and quality assessments in 2020, and consider additional funding or reinsurance options for value-based providers.

“The cost to the healthcare system to deal with a pandemic like COVID-19 is unprecedented, and therefore unknown,” the groups stated. “Clinicians in value-based arrangements face even higher levels of financial risk as a direct result of COVID-19. Any resources they spend to mitigate the spread of COVID-19 will cost them twice, once at the onset and again when spending is evaluated at year end in the context of their value-based performance.”

Just how much COVID-19 will cost hospitals is still unclear. Providers are still very much in the thick of the pandemic but one fact is coming into focus: COVID-19 will carry a large price tag that will put many hospitals in financial distress for years to come.

Regulation and policy, as well as industry-wide changes, will be necessary to help providers navigate this uncertain time. Improved documentation and a more defensive financial strategy will also support hospitals as the virus taxes the healthcare system and the global economy.