The financial challenges caused by the COVID-19 pandemic forced hundreds of hospitals across the nation to furlough, lay off or reduce pay for workers, and others have had to scale back services or close.
Lower patient volume, canceled elective procedures and higher expenses tied to the pandemic have created a cash crunch for hospitals, and hospitals are taking a number of steps to offset financial damage. Executives, clinicians and other staff are taking pay cuts, capital projects are being put on hold, and some employees are losing their jobs. More than 260 hospitals and health systems furloughed workers in the last year, and dozens of others have implemented layoffs.
Below are nine hospitals and health systems that are laying off employees. Some of the layoffs were attributed to financial strain caused by the pandemic.
1. Boca Raton, Fla.-based Cancer Treatment Centers of America is selling its hospital in Philadelphia and will lay off the facility’s 365 employees, according to a closure notice filed with the state. Cancer Treatment Centers of America said it anticipates the layoffs in Philadelphia will begin after May 30, according to the Philadelphia Business Journal.
2.Providence Queen of the Valley Medical Center in Napa, Calif., will lay off 10 employees, The Napa Valley Register reported April 11. The layoffs will affect six emergency department technicians and four cooks. The COVID-19 pandemic had a “profound effect” on the hospital system, including volume and revenue reductions, a Providence spokesperson told The Napa Valley Register. As a result of volume declines in its ED, the health system is reducing staffing.
3. Olympia Medical Center in Los Angeles closed March 31. The closure resulted in the layoffs of 451 employees.
4. The outgoing owners ofProvidence Behavioral Health Hospital in Holyoke, Mass., are laying off the hospital’s 151 employees, effective April 20, according to MassLive. Trinity Health of New England, part of Livonia, Mich.-based Trinity Health, is selling the hospital to Health Partners New England, which plans to take over the hospital April 20.
6. Plattsburgh, N.Y.-based Champlain Valley Physicians Hospitalplans to cut 60 jobs. The hospital, which is facing a $6.5 million deficit in fiscal year 2021, said the cuts include 10 people who were laid off or had permanent hour reductions, 12 people who are planning retirement, and the rest are open positions that will not be filled, according to a March 9 NBC 5 report.
7. Buffalo, N.Y.-based Catholic Healthannounced March 19 that it plans to end inpatient services and close the intensive care unit at its St. Joseph campus in Cheektowaga, N.Y. The changes will result in some positions being eliminated. Catholic Health said it will try to find affected employees comparable positions within the system.
8. Upper Allegheny Health System, a two-hospital system based in Olean, N.Y., plans to reduce acute care and surgical services at Bradford (Pa.) Regional Medical Center. Under the plan, the acute care and surgical services will be moved to the health system’s other hospital, Olean General Hospital, effective May 1. There will be a minimal number of layoffs resulting from the consolidation of services, a spokesperson told WHYY.
9. Philadelphia-based Tower Health laid off 15 workers at St. Christopher’s Hospital for Children, including four physicians, in March, according to The Philadelphia Inquirer. Tower Health ended the second half of last year with an operating loss of $31 million, according to the report.
About 1 in 10 nursing homes in California and nationwide are owned by private equity (PE) investors, and new research suggests that death rates for residents of those facilities are substantially higher than at institutions with different forms of ownership.
Researchers from New York University, the University of Chicago, and the University of Pennsylvania found that the combination of subsidies from Medicare and Medicaid alongside incentives for PE owners to increase the value of their investments “could lead high-powered for-profitincentives to be misaligned with the social goal of affordable, quality care [PDF].” The researchers — Atul Gupta, Constantine Yannelis, Sabrina Howell, and Abhinav Gupta — reported that nursing homes owned by private equity entities were associated with a 10% increase in the short-term death rate of Medicare patients over a 12-year period. That means more than 20,000 people likely died prematurely in homes run by PE companies, according to their study, which was published in February by the National Bureau of Economic Research (NBER).
In addition to the higher short-term death rates, these homes were found to have sharper declines in measures of patient well-being, including lower mobility, increased pain intensity, and increased likelihood of taking antipsychotic medications, which the study said are discouraged in the elderly because the drugs increase mortality in this age group. Meanwhile, the study found that taxpayer spending per patient episode was 11% higher in PE-owned nursing homes.
There’s nothing new about for-profit nursing homes, but private equity firms are a unique subset that in recent years has made significant investments in the industry, Dylan Scott reported in Vox. PE firms typically buy companies in pursuit of higher profits for shareholders than could be obtained by investing in the shares of publicly traded stocks. They then sell their investments at a profit, often within seven years of purchase. They often take on debt to buy a company and then put that debt on the newly acquired company’s balance sheet.
They also have purchased a mix of large chains and independent facilities — “making it easier to isolate the specific effect of private equity acquisitions, rather than just a profit motive, on patient welfare.” About 11% of for-profit nursing homes are owned by PE, according to David Grabowski, professor of health care policy at Harvard Medical School. The NBER study covered 1,674 nursing homes acquired in 128 unique transactions.
While the owners of many nursing homes may not be planning to sell them, they also have strong incentives to keep costs low, which may not be good for patients. A study funded by CHCF, for instance, found that “early in the pandemic, for-profit nursing homes had COVID-19 case rates five to six times higher than those of nonprofit and government-run nursing homes. This was true of both independent nursing homes and those that are part of a corporate chain.”
Given the dramatic increase in PE ownership of nursing facilities coming out of the COVID-19 pandemic, the higher death rates are troubling. The year-over-year growth between 2019 and 2020 is especially striking. Before the pandemic, 2019 saw 33 private equity acquisitions of nursing homes valued at just over $483 million.In 2020, there were 43 deals valued at more than $1.5 billion, according to Bloomberg Law reporter Tony Pugh.
And PE interest in health care is not restricted to nursing homes, explained Gretchen Morgenson and Emmanuelle Saliba at NBC News. “Private equity’s purchases have included rural hospitals, physicians’ practices, nursing homes and hospice centers, air ambulance companies and health care billing management and debt collection systems.” Overall, PE investments in health care have increased more than 1,900% over the past two decades. In 2000, PE invested less than $5 billion. By 2017, investment had jumped to $100 billion.
Industry advocates argue that the investments are in nursing homes that would fail without an influx of PE capital. The American Investment Council said private equity firms invest in “nursing homes to help rescue, build, or grow businesses, often providing much-needed capital to strengthen struggling companies and employ Americans,” according to Bloomberg Law.
The Debate Over Staffing
A bare-bones nursing staff is implicated in poorer quality at PE-owned nursing homes, both before and during the COVID-19 pandemic. Staff is generally the greatest expense in nursing homes and a key place to save money. “Labor is the main cost of any health care facility — accounting for nearly half of its operating costs — so cutting it to a minimum is the fastest profit-making measure owners can take, along with paying lower salaries,” journalist Annalisa Merelli explained in Quartz.
Staffing shrinks by 1.4% after a PE purchase, the NBER study found.
The federal government does not set specific patient-to-nurse ratios. California and other states have set minimum standards, but they are generally “well below the levels recommended by researchers and experts to consistently meet the needs of each resident,” according to the journal Policy, Politics, & Nursing Practice.
According to nursing assistant Adelina Ramos, “understaffing was so significant [during the pandemic] that she and her colleagues . . . often had to choose which dying or severely ill patient to attend first, leaving the others alone.”
Ramos worked at the for-profit Genesis Healthcare, the nation’s largest chain of nursing homes, which accepted $180 million in state and federal funds during the COVID-19 crisis but remained severely understaffed. She testified before the US Senate Finance Committee in March as a part of a week long look into how the pandemic affected nursing homes. “Before the pandemic, we had this problem,” she said of staffing shortages. “And with the pandemic, it made things worse.”
$12.46 an Hour
In addition, low pay at nursing homes compounds staffing shortages by leading to extremely high rates of turnover. Ramos and her colleagues were paid as little as $12.46 an hour.
Loss of front-line staff leads to reductions in therapies for healthier patients, which leads to higher death rates, according to the NBER study. The effect of these cuts is that front-line nurses spend fewer hours per day providing basic services to patients. “Those services, such as bed turning or infection prevention, aren’t medically intensive, but they can be critical to health outcomes,” wrote Scott at Vox.
Healthier patients tend to suffer the most from this lack of basic nursing. “Sicker patients have more regimented treatment that will be adhered to no matter who owns the facility,” the researchers said, “whereas healthier people may be more susceptible to the changes made under private equity ownership.”
Growing Interest on Capitol Hill
In addition to the Senate Finance Committee hearings, the House Ways and Means Committee held a hearing at the end of last month about the excess deaths in nursing homes owned by PE. “Private equity’s business model involves buying companies, saddling them with mountains of debt, and then squeezing them like oranges for every dollar,” said Representative Bill Pascrell (D-New Jersey), who chairs the House Ways and Means Committee’s oversight subcommittee.
The office of Senator Elizabeth Warren (D-Massachusetts) will investigate the effects of nursing-home ownership on residents, she announced on March 17.
The hope is that the pandemic’s effect on older people will bring more attention to the issues that lead to substandard nursing home care. “Much more is needed to protect nursing home residents,” Denise Bottcher, the state director of AARP’s Louisiana office, told the Senate panel. “The consequence of not acting is that someone’s mother or father dies.”
Sutter Health is launching a “sweeping review” of its finances and operations due to the pandemic’s squeeze on the system in 2020, which led to a $321 million operational loss, the system said Thursday.
The giant hospital provider in Northern California said it will take “several years to fully recover,” adding that it plans to restructure and even close some programs and services that attract fewer patients, and will reassign those employees to busier parts of its network.
Sutter, which spent $431 million to modernize its facilities last year, is also reassessing its future capital investments due to its current financial situation.
The pandemic “exacerbated” existing challenges for the provider, including labor costs, Sutter said.
Expenses again outpaced revenue in 2020 and Sutter fears the trajectory is “unsustainable.”
In 2020, Sutter generated revenue of $13.2 billion which was eclipsed by $13.5 billion in expenses, which was actually lower than its total expenses reported in 2019.
Last year, the system invested heavily to prepare for the pandemic, buying up personal protective equipment and other supplies all while volumes declined. Sutter estimates it spent at least $121 million on COVID-19 supplies, which does not include outside staffing costs.
Sutter said labor costs represented 60% of its total operating expenses, blaming high hospital wage indexes in Northern California, which it said are among the priciest in the country.
Still, Sutter was able to post net income of $134 million thanks in part to investment income, which was also deflated compared to the year prior.
Volume has not rebounded to pre-pandemic levels, the system said.
Admissions, emergency room visits and outpatient revenues all fell year over year, according to figures in Sutter’s audited financial statements.
Other major health systems were pinched by the pandemic but were able to post a profit, including Kaiser Permanente.
“For the most part providers were dependent on that CARES funding. I think they would have been in the red or break even without it,” Suzie Desai, a senior director at S&P Global Ratings, said.
The pandemic weighed heavily on the financial performance of not-for-profit hospitals in 2020, but some of the larger health systems remained profitable despite the upheaval — in large part thanks to substantial federal funding earmarked to prop up providers during the global health crisis.
Industry observers have been closely watching to see how health systems ultimately fared in 2020. Now, with the fiscal-year ended and accounted for, analysts say the $175 billion in federal funds was crucial for providers’ bottom lines.
“Without the stimulus funding, it is very likely we would have seen more issuers [hospitals/health] systems experience either lower profitable margins, or outright losses from operations,” Kevin Holloran, senior director of U.S. public finance for Fitch Ratings, said.
Still, the pandemic put a squeeze on nonprofit hospital margins last year, according to a recent Moody’s report that showed the median operating margin was 0.5% in 2020 compared to 2.4% in 2019.
The first half of the year hit providers especially hard as volumes fell drastically, seemingly overnight. Revenue plummeted alongside the volume declines as the nation paused lucrative elective procedures to preserve medical resources.
But as the year wore on, the outlook improved as some volumes returned closer to pre-pandemic levels. At the same time, health systems worked to cut expenses to mitigate the financial strain.
Still, some health systems did post operational losses even with the federal funds meant to help them. Moody’s found that 42% of 130 hospitals surveyed posted an operating loss, an increase from 23% the year prior. Yet, the 2019 survey included more hospitals, a total of 282.
Sutter Health, the Northern California giant, reported an operating loss for 2020 and said it was launching a “sweeping review” of its finances as the pandemic exacerbated existing challenges for the provider. Washington-based Providence also reported an operating loss for 2020. However, both Sutter and Providence were able to post positive net income thanks in large part to investment gains.
Investment income can aid nonprofit operators even when core operations are stunted like during 2020. Though, initially, the pandemic put stress on the stock market as uncertainty around the virus and its duration ballooned. The stock market took a dive and it was reflected in some six-month financials as both operations and investments took a hit.
“COVID and the stimulus is (hopefully) a once in a lifetime disruption of operations,” Holloran said, who noted analysts have been trying to assess whether the top line losses can be placed squarely on COVID-19. If that’s the case, analysts are typically more apt to keep the provider’s existing rating.
“For the most part providers were dependent on that CARES funding. I think they would have been in the red or break even without it,” Suzie Desai, a senior director at S&P Global Ratings, said.
For example, Arizona’s Banner Health would have posted an operating loss without federal relief, according to their financial reports. Banner Health was able to work its way back to black after it reported a loss through the first six months of the year. The same was true for Midwest behemoth Advocate Aurora.
The providers that were able to weather the storm of the pandemic tended to be integrated systems that had a health plan under their umbrella.
Kaiser Permanente ended the year with both positive operating and net income and returned relief funds it received.
“The integrated providers, yeah, were one group that just had a natural hedge with the insurance premiums still coming in,” Desai said.
Still, the hospital lobby is hoping to secure more funding for its members as the threat of the virus is still present even amid large scale efforts to vaccinate a majority of Americans to reach a blanket of protection from the novel coronavirus and its variants.
The likelihood that U.S. hospitals will default on debt within the next year fell significantly since the 2020 peak amid the early days of the pandemic, according to a March 10 report from S&P Global Market Intelligence.
In 2020, the median default odds jumped to 8.1 percent. However, as of March 8, the probability of default rate fell to 0.9 percent.
Samuel Maizel, a partner from law firm Dentons, told S&P Global that many hospitals operate on razor-thin margins, and they are seeing less cash flow amid the pandemic as patients shy away from receiving care, but stimulus funds should help avert a tidal wave of hospital bankruptcies in the next year.
“They’re sitting on a lot of cash, which gives them a cushion, even though they’re continuing to lose money,” Mr. Maizel told S&P Global.
S&P said that as stimulus funds dry up other pressures may challenge healthcare facilities.
Mercy Hospital & Medical Center in Chicago has secured a nonbinding purchase agreement with Insight Chicago just months before it is slated to close its doors, according to the Chicago Tribune.
Under terms of the deal, still being negotiated, Insight Chicago would operate Mercy Hospital as a full-service, acute care facility. Insight Chicago is a nonprofit affiliated with a Flint, Mich.-based biomedical technology company.
The deal is subject to regulatory approval, but if it goes through, it would keep the 170-year-old safety-net hospital open.
Securing a potential buyer is the latest in a series of events related to the Chicago hospital.
On Feb. 10, Mercy filed for bankruptcy protection, citing mounting financial losses and losses of staff that challenged its ability to provide safe patient care.
The bankruptcy filing came just a few weeks after the Illinois Health Facilities and Services Review Board rejected a plan from Mercy’s owner, Trinity Health, to build an outpatient center in the neighborhood where it planned to close Mercy. The same board unanimously rejected Livonia, Mich.-based Trinity’s plan to close the hospital in December.
The December vote from the review board came after months of protests from physicians, healthcare advocates and community organizers, who said that closing the hospital would create a healthcare desert on Chicago’s South Side.
Mercy said that until the pending deal with Insight Chicago is signed and approved by regulators, it still plans to close the facility. If the agreement is reached before the May 31 closure, Mercy will help transition services to Insight Chicago, according to theChicago Sun-Times.
Insight Chicago told local NPR affiliateWBEZthat it has a difficult task ahead to build community trust and address the financial issues that have plagued the Chicago hospital.
“I think the big main point we want to understand between now and then is the community needs to build trust with the community, and I think to build trust we have to tell the truth and be sincere,” Atif Bawahab, chief strategy officer at Insight, told WBEZ. “And there’s a reality of the situation as to why [the hospital] is going bankrupt and why several safety net hospitals are struggling.”
In its bankruptcy filing, Mercy said its losses have averaged about $5 million per month and reached $30.2 million for the first six months of fiscal year 2021. The hospital also said it has accumulated debt of more than $303.2 million over the last seven years, and the hospital needs more than $100 million in upgrades and modernizations.
West Reading, Pa.-based Tower Health is looking for a partner to buy the entire system, which comprises six hospitals, according to the Reading Eagle.
“We are compelled to pursue every possible avenue available to protect and preserve the future of care at all of our hospitals and facilities,” Tower said in a statement to The Philadelphia Inquirer on Feb. 26. “As part of this process, we will examine potential partnerships for the entire Tower Health system with like-minded health systems that share our same values and passion for clinical excellence.”
The health system had previously said it was looking for buyers for its hospitals, with the exception of its flagship facility, Reading Hospital in West Reading, according to the Inquirer.
On March 1, Tower Health was hit with a three-notch credit downgrade by Fitch Ratings. The credit rating agency said its long-term “B+” rating and negative outlook for the system reflect significant ongoing financial losses from the COVID-19 pandemic and operational challenges following the 2017 acquisition of five hospitals.
S&P lowered its rating on Tower Health by two notches, to “BB-” from “BB+,” on March 2.
Tower Health had operating losses of more than $415 million in fiscal year 2020, and it expects an operating loss of about $160 million in fiscal 2021, according to Fitch.
Executives might be committed to accuracy, but middle managers and others throughout the organization must be on board, too.
The pandemic is increasing financial reporting fraud, putting the onus on CFOs to create an organization-wide system that prevents wrongdoing, a coalition of auditing and other oversight groups said in a report released today.
“Financial statement fraud in public companies is real and that risk has only increased during the Covid-19 pandemic,” said Julie Bell Lindsay, executive director of the Center for Audit Quality, one of four groups to release the report.
To help ensure the integrity of their company’s financial reporting,CFOs can’t rely on external auditors as their bulwark against fraud; they must weave protection into the fabric of the organization and exercise the same skepticism toward numbers auditors are trained to do.
“The strongest fraud deterrent and detection program requires extreme diligence from all participants in the financial reporting system,” Lindsay said. “Certainly, you have internal and external auditors, but you also have regulators, audit committees and, especially, public company management.”
The report looks at SEC enforcement data from 2014 to 2019, a period of relative calm Linsday said can help set a baseline for assessing how much in pandemic-caused fraud regulators will find when they do their post-crisis analysis.
“The timing of this report is really a great way to … remind all the folks in the financial reporting ecosystem that … the pressures for fraud to happen are strong right now,” she said.
Improper revenue recognition comprises about 40% of wrongdoing in financial reporting, more than any other type, a finding that tracks an SEC analysis released last August.
Companies tend to manipulate revenue in four ways:
The timing of recognition
The value applied
The percentage of contract completion claimed
The report singles out revenue-recognition manipulation by OCZ Technology Group, a solid-state drive manufacturer that went bankrupt in 2013, as a typical case.
The company had to restate its revenues by more than $100 million after it was caught mis-characterizing sales discounts as marketing expenses, shipping more goods to a large customer than it could be expected to sell, and withholding information on product returns.
The CEO was charged with fraud and the CFO with accounting, disclosure, and internal accounting controls failures.
The report lists three other common types of fraud: manipulation of financial reserves, manipulation of inventories, and improper calculation of impairment.
Reserve issues involve how, and when, balances are changed, and how expenses are classified; inventory issues involve the amounts that are listed and how much sales cost; and impairment issues involve the timing and accuracy of the calculation.
More of these kinds of problems will likely be found to be happening because of the pandemic, the report said.
“This is where all of this comes to a head,” Lindsay said. “You certainly can see pressure, because some companies are struggling right now and there can be pressure to meet numbers, analysts expectations.”
The pressure finance professionals face is part of what the report calls a “fraud triangle,” a convergence of three factors that can lead to fraud:pressure, opportunity and rationalization.
In the context of the pandemic, pressure comes as companies struggle with big drops in revenue; opportunity arises as employees work remotely; and the rationalization for fraud is reinforced by the unprecedented challenges people are facing.
“It could be anything,” said Lindsay. “‘My wife just lost her job, so I need to make up for it.'”
The report lists fraud types that analysts expect are rising because of the pandemic:
Fabrication of revenue to offset losses.
Understatement of accounts receivable reserves as customers delay payments.
Manipulation of compliance with debt covenants.
Unrecognized inventory impairments.
Over- or understated accounting estimates to meet projection.
About a dozen types in all are listed.
“Past crises have proven that at any time of large-scale disruption or stress on an economy or industry, companies should be prepared for the possibility of increased fraud.” the report said.
Lindsay stressed three lessons she’d like to see CFOs take away from the report.
First, the potential for fraud in their companies shouldn’t be an afterthought. Second, protection against it is management’s responsibility but there’s also a role for company’s audit committee, its internal auditors and it’s external auditors. Third, CFOs and the finance executives they work with, including at the middle management level, must bring that same skepticism toward the numbers that auditors are trained to bring.
“Professional skepticism is a core competency of the external auditor and, quite frankly, the internal auditor,” she said. “Management and committee members are not necessarily trained on what it is, but it doesn’t mean you shouldn’t be exercising skepticism, [which is] asking questions about the numbers that are being reported. Is this exactly what happened? Do we have weaknesses? Do we have areas of positivity? It’s really about drilling down and having a dialogue and not just taking the numbers at face value.”
Hospital margins and revenues continued to fall in November, while expenses remained above 2019 levels, according to Kaufman Hall’s December Flash report, which examines metrics from the previous month.
The median hospital operating margin in November was 2.5 percent year to date with funding from the Coronavirus Aid, Relief and Economic Security Act. Without the funds, the median hospital operating margin narrowed to -1.1 percent.
Skyrocketing COVID-19 cases are already stretching hospitals’ capacity, and Kaufman Hall expects the situation to worsen in coming months as holiday gatherings and colder weather push case counts up even further.