For-profit health systems have been better able to weather a financial crisis caused by COVID-19 than their nonprofit counterparts because they could reduce more expenses, a new analysis from the Medicare Payment Advisory Commission finds.
The analysis released Thursday during MedPAC’s monthly meeting comes as providers struggle to recover from low patient volumes stemming from the COVID-19 pandemic. The report also explored how physician offices have fared.
Hospitals faced a massive dip in patient volume in March and April at the onset of the pandemic, which forced facilities to cancel or delay elective procedures. Patient volumes have since recovered to near pre-pandemic levels, MedPAC found.
But the recovery has been mixed depending on the hospital system.
MedPAC looked at earnings for three large nonprofit systems in the U.S. and four large for-profit systems in the second quarter and found a variation in how they handled the decline in revenue.
Aggregate patient revenue for the nonprofit systems declined by $1.5 billion and this led to a $621 million loss for the systems in the second quarter compared to the same period in 2019. Overall the systems had operating profit margins ranging from negative 13% to positive 5%.
The four for-profit systems saw a $3.5 billion decline in patient revenue. However, the systems posted an increase of $634 million in operating income.
This led to a range of operating margin increases of 1 to 14% in the second quarter compared to 2019.
The for-profit systems got more relief funding ($1.9 billion compared with $782 million) from a $175 billion federal provider relief fund created by the CARES Act.
But the biggest difference between for-profit and nonprofit systems was how they handled expenses.
“For-profit systems substantially reduced expenses in the second quarter, in aggregate reduced by $2.3 billion and that made up for lost revenue,” said Jeff Stensland, a MedPAC staff member, during the meeting.
Nonprofit systems only saw a $13 million decline in expenses.
MedPAC did not name the systems that it analyzed nor did it delve into what expenses were reduced and how.
Some systems have taken to furloughing employees but all systems have faced increased expenses for personal protective equipment and some staff.
The analysis also looked at the financial impact of the pandemic on physician offices. MedPAC found that federal grants, loans and payment increases offset a majority of the revenue lost in March and May due to patient volume declines.
MedPAC estimated physician offices lost between $45 to $55 billion. However, offices got $26 billion in loans from the Paycheck Protection Program, which don’t have to be repaid if the majority of the funds go to payroll.
Physician offices also received $5 billion out of the $175 billion provider relief fund passed as part of the CARES Act.
Physicians also got $1 billion in savings from the temporary suspension of a 2% decline in Medicare payments created under sequestration.