US hospitals losing around $50 billion a month due to Covid-19

Rick Pollack, President and CEO of the American Hospital Association (AHA), which represents 5,000 hospitals, health care systems, networks, other providers of care (about 43,000 individual members), estimates that hospitals are losing as much as US$50 billion a month.

"I think it's fair to say that hospitals are facing perhaps the greatest challenge that they have ever faced in their history," Pollack said.

In response to the financial crisis facing these healthcare institutions in the US, earlier this month, as part of the coronavirus relief package known as the CARES Act, the federal government began disbursing $30 billion in aid to hospitals across the country. On Friday 1 May, another $20 billion was released.

“We're being faced with what I would call a triple whammy. We have the increased expenses that have been incurred in terms of preparing for the surge and caring for the Covid patients,” Pollack explained. “And then we have the decreased revenues associated with having shut down regular operations in terms of scheduled procedures. You combine that with the increased number of uninsured as a result of the economic situation, and you've got a triple whammy there.”

Indeed, US hospital operator HCA Healthcare Inc reported a 70-per-cent drop in outpatient surgeries so far in April compared with a year ago, while inpatient admissions declined 30 per cent. And Janice Orlowski, Chief Health Care Officer at the American Association of Medical Colleges (AAMC), cited that many of the organisation’s member institutions were experiencing a 30-per-cent to 50-per-cent drop in the number of patients who are in the hospital.

Moreover, while AAMC member institutions are being paid more for treating Covid-19 cases, increased costs, including PPE and expanding ICU equipment and facilities, are driving up costs. Orlowski reasoned: “But what they’re [AAMC member institutions] finding is [patients are] very resource intensive. Their long stays on ventilators, long ICU stays; people are very sick. So even though there’s been an increase in payment, people are utilising more resources.”

However, the impact on US health insurers is quite the opposite. While many health insurers have been waiving Covid-19-related health costs for their members, Canadian multimedia firm Reuters reported that the combined costs of waiving Covid-19 related co-pays, deductibles, tests and other care paled in comparison to the savings these firms would make from millions of Americans delaying care.

“The costs from Covid-19 are going to be actually very small [for US health insurers] and more than outweighed by the deferral of elective procedures. The net impact is going to be positive for them,” said Jeff Jonas, Portfolio Manager with investment firm Gabelli Funds.

But it’s worth noting that the problem of elective surgery losses extends far beyond the US. In Australia, for example, private hospital operator Healthe Care, which owns 34 hospitals and employs 8,000 staff in the eastern states, has warned that dozens of private hospitals across the country will be forced to close over the next week due to the losses accrued from the ban on elective surgeries.

Elsewhere, Mediclinic, an international private healthcare group that operates in Switzerland, South Africa, Namibia and the United Arab Emirates, noted that the cancellations of non-elective surgeries would hit full year earnings.

Commenting on its decision to preserve liquidity by suspending all non-essential capital expenditure, cancelling executive pay rises, and obtaining loan covenant test waivers for material borrowings across all three of its divisions up to and including March 2021, Mediclinic said: "This allows the group to focus on the vital role it plays during the pandemic and to prepare for the anticipated increase in demand from postponed treatments once the peak of the pandemic subsides.”