Relief funding helped hospitals stay in the green during COVID-19’s initial barrage, study finds

Despite substantial operating margin declines during the first year of COVID-19, U.S. hospitals were able to keep their finances on track thanks to billions in government relief funds, Johns Hopkins researchers wrote in a new study published Friday in JAMA Health Forum.

Per their analysis of Centers for Medicare and Medicaid Services (CMS) Hospital Cost Reports data, researchers found that thousands of hospitals broadly maintained their overall profit margins thanks to a boost in “other nonoperating income,” the category under which hospitals recorded the collective $175 billion in subsidies Congress allocated to support healthcare facilities and clinicians.

This was particularly the case for government, rural and smaller hospitals that typically run on tighter margins, the researchers wrote. Because they, by design, received more targeted relief than other types of hospitals, these facilities were able to record higher overall profit margins in 2020 than in prior years.

“Hospital operations were really hit hard during the pandemic,” Ge Bai, professor in the Bloomberg School’s Department of Health Policy and Management, a professor of accounting at the Johns Hopkins Carey Business School and an author of the study, said in a statement.

“Our study shows that the relief funds provided an important lifeline to keep financially weak hospitals up and running.”

Among the study’s sample of 1,378 hospitals, mean operating margin declined from –1.0% in 2019 to –7.4% in 2020, representing the hit facilities took to their operations prior to the relief funding.

Those hospitals’ mean overall profit margin during the first year of the pandemic was 6.7%, which the researchers wrote was stable in light of the preceding four years and across all ownership types, geographic locations and hospital sizes.

The difference-maker, they wrote, was an increase in other nonoperating income as a share of a hospital’s total revenue. While that mean share was 4.4% in 2019, it jumped to 10.3% in 2020 thanks to the government relief funds.

Additionally, certain types of hospitals with traditionally lower overall profit margins saw significant improvements in 2020. These included government hospitals (3.7% to 7.2%), rural hospitals (1.9% to 7.5%) and hospitals with fewer admissions (3.5% to 6.7%).  

“Hospitals that tend to serve socioeconomically disadvantaged patients and more who are uninsured are the most vulnerable to financial losses,” Yang Wang, a doctoral student in the Bloomberg School’s Department of Health Policy and Management and the study’s first author, said in a statement. “But the extra federal funding helped them stay operational.”

The researchers’ study included hospitals with fiscal years beginning in January whose financial data were compiled and processed as part of RAND Hospital Data, which in turn pulls its data from CMS’ Medicare Cost Reports. The findings persisted among a second sample of 785 hospitals from the database with fiscal years beginning in July.

The government’s distribution of COVID-19 relief funds to providers has faced some critique from healthcare policy researchers, some of whom suggested that the methodology led to funding skewed toward hospitals serving well-insured communities.

Much of the relief set aside for hospitals has since run dry or is on its last legs as of early 2022. With COVID hospitalizations again ticking upward and earlier surges still unaccounted for, industry groups and the Biden administration alike are pushing Congress for more relief support.

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