A Post COVID-19 United States – Hospitals
In a recent blog, we noted that U.S.-based hospitals and hospital systems (HS) are being severely impacted by the COVID-19 pandemic. This is counter-intuitive to what most people would assume. Hospitals being paid by the government and insurance companies that suddenly have a huge demand for services would be making a great deal of money; however, that is not at all the case.
These issues are somewhat complex, but the short answer is in the disparity between baseline cost, variable cost and most important, the sources of revenues. In response to the COVID-19 crisis, most hospitals in the U.S. suspended “elective surgeries” or those surgeries that are done by choice of the patient or physician and not in response to an emergency; in other words, surgeries that can wait as no life-threatening situation exists. The goal of this suspension of elective surgeries was to ensure maximum bed space capacity, minimize potential cross-exposure with COVID-19 patients and to save Personal Protective Equipment.
Here is one story from CNBC:
“At Providence St. Joseph Health in the Seattle-area, the volume of heart attack patients at its 51 hospitals fell by about 50% in March compared with the same month last year, CEO Dr. Rod Hochman said, adding that the notion that people have just stopped having heart attacks is “too good to be true.” He and other physicians suspect patients that have mild heart attacks or strokes — that would have normally sent them to the emergency room in the past — are seeking treatment from family doctors, outpatient clinics or foregoing it altogether as Covid-19 patients inundate hospitals across the country. The consequences could last years, he said.”
Another report has a running list of over 190 hospitals and hospital systems that are announcing major cuts in staff, surely in the thousands. The recent allocation of grant money from the federal government is likely to only replace a week or less of lost revenues.
The issues for hospitals are very real. I have been around hospitals for decades and undeniably lifesaving work is done there. Nearly everyone in my family has had the need to be hospitalized whether for childbirth or treatment for a serious illness, so I am very “pro” hospital. I was honored to serve on a hospital board for a number of years in my community; something I valued and was honored to do. I have had more than one doctor tell me that ‘hospitals are dangerous places to go and no place for a ‘well person,’ which is confirmed by reports that indicate 5% or more of people who visit a hospital come home with something they picked up in the hospital.
I recall Governor Cuomo of New York, speaking early in the COVID-19 crisis, that New York needed more hospital beds, all the while running a state with some of the nation’s most restrictive laws to expand hospitals, known as “Certificates of Necessity,” undoubtedly to limit the building of new ones. Also, most states have license-to-practice restrictions that do not allow doctors to cross state lines, again creating barriers and higher cost while restricting the movement of professionals, an actual restriction of trade.
Other issues hospitals face is that the federal government programs restrict their ability to charge a facility fee for medical practices they own however, they provided off-campus care, which points to another issue. With the passing of Affordable Care Act in 2010, hospitals were incentivized to acquire physician practices, in part, to secure referrals towards the goal to provide more comprehensive care; a subject we will discuss further in a future blog. In short, this has created a situation in which hospitals now have to pay these doctors, even if they lay-off other staff, as the doctors are covered by professional services and non-compete agreements. Further, as there is likely to be more hospital competition, it is very likely owning a physician practice will now be a liability.
The American Medical Association noted in 2019 the following:
“In 2018, 47.4% of practicing physicians were employed, while 45.9% owned their practices, according to a new entry in the AMA Policy Research Perspectives (PRP) series.”
Most hospitals in America are non-profit and have other sources of capital including real estate tax base, endowments and community-based sponsorship. Their challenge will get much worse post COVID-19, and unfortunately many may have to close.
In our next blog, we will dive deeper in another segment of healthcare and how it will be impacted in a post COVID-19 United States.
Author’s note: We are renaming this blog The United States of Healthcare (SM) because it is self-evident. We are also working on a book of the same title that will summarize how we have arrived at this point and what we can do going forward to flourish given that healthcare is now recognized as the single largest industry in the United States of America.
-Noel J. Guillama, President