As vital as ever, hospitals face financial strains, make cuts as COVID outbreak grows
The coronavirus outbreak has kept North Carolina hospitals busy preparing for a surge in patients, but it has been bad for the bottom line.
Hospitals have spent millions getting ready to treat people with COVID-19, by re-deploying doctors, nurses and other employees, stockpiling supplies and adding new beds and ICU units.
At the same time, they have canceled non-urgent surgeries and procedures to free up hospital beds, staff and supplies, including masks, gowns and other personal protective equipment. For many hospitals, these procedures play an outsized role in keeping the enterprise afloat.
Hospitals in North Carolina are losing about $1 billion a month to COVID-19, says Steve Lawler, president and CEO of the N.C. Healthcare Association, the trade group that represents all 130 hospitals in the state. About $800 million of that is lost revenue from surgeries and other procedures state health officials asked hospitals to postpone to prepare for potential COVID-19 patients, Lawler said.
“When you’re taking their book of business that pays the bills, ask them to stop doing those things, something has to give,” Lawler said.
Hospitals across the country are furloughing or laying off employees who aren’t involved in the fight against COVID-19. Cape Fear Valley Health in Fayetteville said last week it would furlough about 300 employees, while Southeastern Health in Lumberton said it would reduce its staff by 201.
The staff cutbacks are intertwined with the effort to make resources available for coronavirus patients. Southeastern Health said it was shutting down walk-in clinics, physician practices, outpatient physical and occupational therapy services, surgery and radiology centers and even the gift shop and cafeteria in the main hospital.
“This was not an easy decision to make, but it is in the best interest of the health of our employees and the community,” president and CEO Joann Anderson said in written statement. “As healthcare providers, we are on the front lines of the COVID-19 pandemic and need to do everything we can to ensure we have the right clinical resources in place, including staff, supplies and equipment, to prepare for a COVID-19 patient surge.”
The large hospital systems in the Triangle — Duke Health, WakeMed and UNC Health — have not announced furloughs or layoffs. But Lawler said like all hospitals they are looking for ways to save money.
“I don’t think there’s anyone that believes their balance sheet is so strong that they don’t have to take tough steps and make difficult decisions,” he said.
UNC Health has not let anyone go, but those not reassigned to coronavirus duty must take their vacation or personal time, said spokesman Alan Wolf. When that runs out, they’ll take unpaid leave or draw from a pool of future paid time off, Wolf said.
“We expect that as the COVID-19 crisis worsens in North Carolina, most co-workers will be enlisted to work in some capacity,” he said in a written statement. “Some employees will be asked to move into new roles, and will receive the appropriate training to support our efforts to care for patients during this critical time.”
Meanwhile, UNC Health is reducing discretionary spending where possible, Wolf said. That includes cutting costs on items such as consulting, travel and the purchase of equipment not needed for COVID-19 and delaying construction projects. Some functions UNC has hired contractors to do may be brought back in-house to save money, he said.
Hospitals cut back on profitable services
It may seem odd that hospitals are hurting financially at a time when they are so busy and vital.
“It does seem counterintuitive when we hear there’s not enough people to get the work done and yet these furloughs, and soon to be layoffs in some places, are happening,” said Bradley Staats, a professor at the Center for the Business of Health at UNC’s Kenan-Flagler Business School.
The problem is that the services hospitals are trimming also tend to be among the most profitable, Staats said. So-called elective procedures, such as knee replacements and other orthopedic surgeries, may be 25% of a hospital’s business but account for 75% of its profits, he said.
“You are basically idling resources that are quite lucrative for the hospital,” he said.
The need for those procedures won’t go away, so the business will likely come back in time. When depends on the extent of the coronavirus outbreak and how quickly hospitals and their customers get back to normal. Large hospital systems are better positioned to weather the downturn, Staats said.
“UNC’s main hospital — they will be OK,” he said. “This gets harder if you’re a rural hospital that might have been already losing money and barely hanging on.”
Since 2005, the N&O reported, 11 hospitals have closed in rural North Carolina.
Meanwhile, Staats said, hospitals will receive some revenue from treating COVID-19 patients, but it’s less likely to fully cover the costs of the expensive equipment and intense personal attention these patients require.
The massive relief bill signed by President Donald Trump last week includes $100 billion in aid for hospitals, but the U.S. Department of Health and Human Services hasn’t said how that money will be distributed.
“We’re still figuring out now what that means and how do we access those dollars for our members,” Lawler said.
He said North Carolina legislators will soon be working on their own version of a relief package that he hopes will contain something for hospitals. He also said Medicaid, Medicare and private insurers could help by front-loading payments for future services.
The extent of the pain for hospitals will depend on how long the coronavirus outbreak lasts, which is where Lawler says everyone can do their part by social distancing, staying at home and washing their hands.
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