Mercy Hospital & Medical Center in Chicago filed for bankruptcy protection Feb. 10, amid its plan to close that has been contested in the community.
The Chapter 11 plan includes the discontinuation of inpatient acute care services, Mercy’s owner, Livonia, Mich.-based Trinity Health, said in a bankruptcy filing.
Mercy said it plans to cease operations of all departments, except for basic emergency services, on May 31.
“There have been many steps that preceded the difficult decision to file for Chapter 11,” Trinity said.
In a news release announcing the bankruptcy, Mercy said it was losing staff and “experiencing mounting financial losses” that are challenging its ability to provide safe patient care.
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. Further, the hospital 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.
The Chapter 11 bankruptcy filing comes just weeks after the Illinois Health Facilities and Services Review Board rejected Trinity’s plan to build an outpatient center in the neighborhood where it is closing the 170-year-old inpatient hospital. The same board unanimously rejected 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 say that closing the hospital would create a healthcare desert on Chicago’s South Side.
The state review board has a meeting to discuss the closure March 16.
Patient volumes were uneven in 2020, and a new report shows volumes will likely remain below pre-pandemic levels in 2021. This indicates challenges for hospitals looking to stabilize their finances — but there are some key strategies that can help.
Though hospital finances recovered to some extent by the end of 2020, the industry is not out of the woods yet. However, with strategic investments, especially in outpatient care and technology, hospitals and health systems can help buoy their finances in this challenging time, industry observers said.
Patient volumes have fluctuated wildly after the Covid-19 pandemic hit as Covid-19 patients flocked to hospitals and those needing or seeking elective surgery and other care staying away. Not surprisingly, this has had a significant impact on health systems’ financial health.
But outpatient settings and digital solutions offer some revenue-generating opportunities for hospitals.
“A number of the major players and some of the bigger regional systems in the country now are in a place where they get more of their revenue from the outpatient side as opposed to the inpatient side,” said Dr. Sanjay Saxena, global healthcare leader, Payers, Providers, Health Care Systems & Services and managing director at Boston Consulting Group, in a phone interview.
In fact, outpatient care was the only healthcare setting that saw an increase in patient volumes in 2020. Though emergency department visits and inpatient volumes were down from July to December last year compared to the same period in 2019, outpatient volumes actually increased by 5%, according to a report by consumer credit reporting agency TransUnion.
Healthcare providers that have well-established and expansive outpatient and ambulatory care businesses will be able to weather patient volume trends better in 2021 than those who do not, said Saxena.
Take HCA Healthcare, for example. The Nashville, Tennessee-based healthcare giant’s revenues jumped to $14.2 billion in the fourth quarter of last year, up from $13.5 billion in the same period in 2019. HCA’s ability to move care outside of the inpatient setting to the ambulatory environment really helped their financial performance, said Saxena.
On the other hand, smaller and more rural hospitals, which depend heavily on ED and inpatient care, may face a challenging year, he added.
Another key investment for hospitals will be in digital solutions to help them manage the ups and downs of patient volume.
“Resilience as a broad topic for provider executives is absolutely top of mind,” said Gurpreet Singh, health services leader at PriceWaterhouseCoopers, in a phone interview. “And resiliency can be achieved in a number of different ways. One way is [figuring out] — can you predict demand a little bit better?”
Patient demand forecasting solutions will be popular, with 74% of health executives recently surveyed by PwC’s Health Research Institute saying their organizations would invest more in predictive modeling in 2021.
Further, hospitals will see savings in some unexpected places. For example, with an increasingly remote and mobile healthcare workforce, hospitals may see cost savings on real estate and facility leases, said Singh.
They can use these savings to invest further in telehealth and at-home care programs to expand care outside of the four walls of the hospital, he added.
The industry has to come to terms with changes brought on by the Covid-19 pandemic, including the shifts in care delivery and patient preferences.
“Some of these things are structurally significant changes,” said Saxena. “Organizations ignore these things…at their peril. Some leading organizations and systems will find a way to embrace [these changes] and leapfrog others in the market coming out of 2021.”
Tower Health said it is cutting salaries of executives and managers amid financial losses linked to the COVID-19 pandemic.
The West Reading, Pa.-based health system has struggled financially in the last two fiscal years. It recorded an operating loss of $378.2 million in fiscal year 2020, as well as an operating deficit of $178.8 million the year prior. And last November, the health system said it would consider selling six of its Philadelphia-area hospitals, including those it has purchased since 2017 from Franklin, Tenn.-based Community Health Systems, as part of a financial turnaround plan.
To help offset the financial damage, about 400 Tower Health executives and managers will have their pay cut, beginning in their Feb. 19 paychecks, according to The Philadelphia Inquirer, which cites a letter CEO Clint Matthews wrote to staff. Executives will have their pay cut by 15 percent, and directors, senior directors and associate vice presidents will have their pay cut by 10 percent.
In a statement shared with Becker’s on Feb. 8, the health system said it “is undertaking several initiatives as part of a coordinated plan to improve operations, strengthen care delivery and address the ongoing financial impact of COVID-19.”
“These actions include compensation reductions for executives and managerial employees, along with operational improvements to reduce costs and enhance revenue,” according to the Tower Health statement.
The salary cuts will be in effect until June 30, and do not affect front-line clinical or support staff, who received merit increases in January.
Tower Health projects cost savings of about $11.6 million because of the pay cuts.
“Reducing management compensation is a difficult but necessary decision that will stabilize and strengthen our financial performance as we continue to meet the challenges of the COVID-19 pandemic, as well as our ongoing mission of providing compassionate, accessible, high-quality, cost-effective healthcare to our communities,” the health system said.
Hospital uncompensated care costs were up from $41.3B in 2018 and $38.4B in 2017, revealing an upward trend, according to AHA data.
Hospital uncompensated care costs increased right before the COVID-19 pandemic hit, according to new data from the American Hospital Association (AHA).
AHA data showed that hospitals incurred a new high of $41.61 billing in uncompensated care costs in 2019, the most recent year for which the group had complete data.
Uncompensated care costs in 2019 were up from $41.3 billion in 2018 and $38.4 billion in 2017 and were the second-highest per AHA records. Hospitals reported the most uncompensated care costs in 2013 when they incurred $46.8 billion.
Hospital uncompensated care costs decreased after the all-time high in 2013, but have recently started to tick back up after holding steady at $38.4 in 2016 and 2017.
In just the last 20 years, hospitals of all types have provided more than $660 billion in uncompensated care to patients, AHA reported. And that figure does not fully account for other ways in which provides provide financial assistance to patients of limited means, the group stated.
Each year, AHA aggregates data on uncompensated care, or care provided for which no reimbursement is received by hospitals from patients or payers. The data comes from the group’s Annual Survey of Hospitals, a comprehensive report of hospital financial data.
Uncompensated care is the sum of a hospital’s bad debt and financial assistance it provides, AHA explained.
Bad debt occurs when a hospital does not expect to obtain reimbursement for care provided, such as when patients are unable to pay their financial responsibility and do not qualify for financial assistance or are unwilling to pay their bills.
Hospitals also provide varying levels of financial assistance, AHA added. Financial assistance supports patients who cannot afford to pay and qualify for support from the hospital based on policies it has established based on the facility’s mission, financial condition, and geographic location, among other factors.
Combined, bad debt and financial assistance charges total a hospital’s uncompensated care charges, which is then multiplied by a hospital’s cost-to-charge ratio to determine total uncompensated care costs.
AHA noted that it expressed uncompensated care in costs versus charges because of significant variations in hospital payer mixes. Publishing the information as costs rather than charges enables better comparison across hospitals, the group said.
Nearly half of hospitals (48 percent) have seen bad debt and uncompensated care increase recently as a result of the ongoing COVID-19 pandemic, an analysis from consulting firm Kaufman Hall revealed.
More than 40 percent of hospitals also reported increases in percentage of uninsured or self-pay patients (44 percent) and the percentage of Medicaid patients (41 percent), which both contribute to unfunded or underfunded care at hospitals.
“The challenges brought on by the COVID-19 pandemic have affected nearly every aspect of hospital financial and clinical operations,” Lance Robinson, a managing director at Kaufman Hall, said at the time. “Organizations have responded to the challenge by adjusting their operations and strengthening important community relationships.”
Hospital uncompensated care costs – and bad debt as a result – are likely to increase in 2020 as hospitals come to terms with the impact COVID-19 has had on their financial health.
Already, hospitals have lost an estimated $323 billion in 2020 as a result of the COVID-19 pandemic, according to earlier projections from AHA.
About half of US hospitals also started the year in the red, AHA and Kaufman Hall stated in a recent report. The organizations predicted that hospital margins would sink to -7 percent in the second half of 2020 without comprehensive financial support from the government, but could decrease to a low of -11 percent if COVID-19 continued to periodically surge as it has.
Here are 14 health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.
1. St. Louis-based Ascension has an “AA+” rating and stable outlook with Fitch and an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile and a significant presence in several key markets, Fitch said. The credit rating agency expects Ascension will continue to produce healthy operating margins.
2. Charlotte, N.C.-based Atrium Health has an “Aa3” rating and stable outlook with Moody’s and an “AA-” rating and stable outlook with S&P. Atrium and Winston-Salem, N.C.-based Wake Forest Baptist Health merged in October. The addition of the Winston-Salem service area and Wake Forest Baptist’s academic and research programs enhance Atrium’s position within the highly competitive North Carolina healthcare market, S&P said.
3. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and S&P. Banner’s financial profile is strong, even taking into consideration the market volatility that occurred in the first quarter of 2020, Fitch said. The credit rating agency expects the system to continue to improve operating margins and to generate cash flow sufficient to sustain strong key financial metrics.
4. Dallas- based Baylor Scott & White Health has an “Aa3” rating and stable outlook with Moody’s. The system has strong liquidity and is the largest nonprofit health system in Texas, Moody’s said. The credit rating agency expects Baylor Scott & White Health to continue to benefit from its centralized operating model, proven ability to execute complex strategies and well-developed planning abilities.
5. Newark, Del.-based ChristianaCare Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has extensive clinical depth and includes Delaware’s largest teaching hospital, Moody’s said. The system’s strong market position will help it resume near pre-pandemic level margins in fiscal year 2021, according to Moody’s.
6. Falls Church, Va.-based Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The system has a strong financial profile, and Moody’s expects Inova’s balance sheet to remain exceptionally strong.
7. Philadelphia-based Main Line Health has an “AA” rating and stable outlook with Fitch. The credit rating agency expects the system’s operations to recover after the COVID-19 pandemic and for it to resume its track record of strong operating cash flow margins.
8. Rochester, Minn.-based Mayo Clinic has an “Aa2” rating and stable outlook with Moody’s. The system has an excellent reputation and generates strong patient demand at its academic medical centers in Minnesota, Arizona and Florida, Moody’s said. The credit rating agency said strong patient demand and proactive expense control measures would likely fuel good results for Mayo for the fiscal year that ended Dec. 31.
9. Midland-based MidMichigan Health has an “AA-” rating and stable outlook with Fitch. The system generated healthy operational levels through fiscal year 2020, and Fitch expects it to continue generating strong cash flow.
10. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins.
11. Winston-Salem, N.C.-based Novant Health has an “AA-” rating and stable outlook with Fitch. The system has strong margins and each of its markets have met or exceeded budgeted expectations over the past four years, Fitch said.
12. Albuquerque, N.M.-based Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The health system has a strong financial profile and a leading market position in Albuquerque and throughout New Mexico, Fitch said. The credit rating agency said it believes Presbyterian Healthcare Services is more resilient to pandemic disruptions than most other hospital systems.
13. Renton, Wash.-based Providence has an “Aa3” rating and stable outlook with Moody’s. Providence has a large revenue base and a leading market share in most of its markets, according to Moody’s. The credit rating agency expects the system’s operations to improve this year.
14. Livonia, Mich.-based Trinity Health has an “AA-” rating and stable outlook with Fitch. The rating is driven by Trinity’s national size and scale, with significant market presence in several states, Fitch said. The credit rating agency expects the system’s operating margins to improve in the long term.
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.
Despite taking a huge volume hit in Q2, most hospitals have managed to maintain positive operating margins—largely thanks to a $100B cash infusion from the federal government via the Coronavirus Aid, Relief and Economic Security (CARES) Act.
According to Kaufman Hall’s most recent National Hospital Flash Report, based on data from over 900 hospitals of all sizes nationwide, hospitals would have been operating at a significant loss without federal aid. As the graphic above shows, the average hospital operating margin without CARES Act relief funds would have been negative eight percent in April—and would still be in the red as of October, despite much of the cancelled elective business returning across the summer and early fall.
However, with the aid, hospitals operating margins only turned negative in April and May. When compared to the same time period last year, year-to-date (YTD) gross revenue is down almost five percent, though net patient service revenue per discharge is up—the result of longer lengths of stay, the 20 percent Medicare reimbursement bump for COVID-19 patients, and suspension of the two percent sequestration adjustment on Medicare fee-for-service payments. Yet hospital expenses per discharge are also up 13.5 percent, dampening profitability.
Though the CARES Act has been a stopgap solution for the vast majority of hospitals, a handful, most notably HCA Healthcare, have proactively returned the money. While motivations for doing so are varied, we’ve been hearing that the ever-changing reporting and spending requirements associated with CARES Act funding have many hospital leaders concerned about possible future claw-backs.
With COVID-19 hospitalizations now reaching record-breaking highs, potentially forcing another round of shut-downs, and with little movement on another round of federal relief, hospitals may be on their own for the time being—and the greatest hit to health system finances may still be yet to come.
Providence posted operating revenues of $18.9 billion during the first nine months of 2020, but its operating expenses ballooned to $19.1 billion.
That was an increase of 4% compared to the same period in 2019.
“The increased expenses were largely driven by the higher cost of labor, supplies and pharmaceuticals needed to safely and effectively respond to COVID-19,” Providence said in a release.
But the system is also fighting a major decline in patient volumes.
Hospital systems across the country faced plummeting patient volumes in March and April as COVID-19 spread across the country and facilities were forced to cancel or postpone elective procedures.
But even as patients started to return to the hospital in the spring and summer, volumes continue to be below pre-pandemic levels.
“Year-to-date volumes as measured by case mix adjusted admissions were 10% lower than the same period last year,” Providence said.
But a bright spot for the system has been its pivot to virtual care.
“We’ve dramatically ramped up virtual care and are on track to log 1.4 million video visits by the end of the year,” said Providence President and CEO Rod Hochman, M.D.
The income loss also comes as Providence recognized $682 million in relief funding as part of a $175 billion fund passed by Congress as part of the CARES Act.
Providence also got help from a recovering stock market.
The system posted year-to-date, non-operating income of $263 million during the first nine months of the year, compared with $772 million during the same period in 2019.
“Non-operating income helps to recoup reimbursement shortfalls from Medicaid and Medicare coverage, allowing us to serve vulnerable populations while balancing our financial standing,” Providence said.
Kennett Square, Pa.-based Genesis Healthcare, one of the largest post-acute care providers in the U.S., warned that bankruptcy is possible if its financial losses continue.
“The virus continues to have a significant adverse impact on the company’s revenues and expenses, particularly in hard-hit Mid Atlantic and Northeastern markets,” Genesis CEO George V. Hager Jr., said in a Nov. 9 earnings release.
Mr. Hager said government stimulus funds the company received in the third quarter of this year fell nearly $60 million short of the company’s COVID-19 costs and lost revenue.
Genesis said it has taken several steps to help offset the financial damage linked to the pandemic, including delaying payment of a portion of payroll taxes incurred through December.
But the company warned that bankruptcy is possible if its financial losses continue.
“Even if the company receives additional funding support from government sources and/or is able to execute successfully all of its these plans and initiatives, given the unpredictable nature of, and the operating challenges presented by, the COVID-19 virus, the company’s operating plans and resulting cash flows, along with its cash and cash equivalents and other sources of liquidity. may not be sufficient to fund operations for the 12-month period following the date the financial statements are issued,” Genesis said. “Such events or circumstances could force the company to seek reorganization under the U.S. Bankruptcy Code.”
Genesis ended the third quarter of this year with a net loss of $62.8 million, compared to net income of $46.1 million in the same period a year earlier.
Kaiser Permanente saw its net income climb more than 68 percent in the third quarter of 2020, according to its financial report released Nov. 6.
The Oakland, Calif.-based health system recorded operating revenue of $22 billion in the quarter ended Sept. 30, up 5.3 percent from the same period a year earlier. Kaiser also saw expenses rise about 5.9 percent year over year, to $21.5 billion.
“Although the pandemic continues to have an impact on Kaiser Permanente, during the third quarter we safely resumed in-person preventive and elective care, started to address the backlog of deferred procedures that were put on hold due to COVID-19, and continued to leverage and grow virtual care for members’ safety and convenience,” said executive vice president and CFO Kathy Lancaster.
The 39-hospital system spent $964 million on capital projects in the third quarter, up from $891 million in the third quarter of 2019.
A lot of the capital spend has been shifted into the IT arena to boost patient and member access to various digital health services such as telehealth, Tom Meier, corporate treasurer of Kaiser, told Becker’s. It also included ongoing multi-year projects and maintenance of its hospitals.
Compared to the third quarter of 2019, Kaiser’s operating income fell 25.9 percent to $456 million.
Largely due to the result of returns in the financial market, the system ended the third quarter of 2020 with a net income of $2 billion. In the same quarter last year, Kaiser recorded a net income of $1.2 billion.
In the third quarter, Kaiser saw its non-operating income reach $1.5 billion, up from $556 million in the third quarter of 2019, Mr. Meier said.
Kaiser also offers a health plan to members across the U.S. As of Sept. 30, Kaiser had 12.4 million health plan members, representing a loss of 11,000 members in the third quarter. The decline was largely attributed to members losing access to their employer-sponsored plan as unemployment went up in the state. However, this decline was offset slightly by members purchasing individual plans or being enrolled in a government-sponsored plan, Mr. Meier said.
For the nine-month period ended Sept. 30, Kaiser reported a net income of $5.4 billion on revenue of $66.6 billion. In the same nine-month period in 2019, the health system recorded a net income of $6.4 billion on revenue of $63.7 billion.
The health system continues to respond to the COVID-19 pandemic. Through the third quarter the system has cared for 185,000 COVID-19 patients and tested nearly 2 million people for the novel virus.