Moody’s: Hospital financial outlook worse as COVID-19 relief funds start to dwindle

For-profit hospitals are expected to see a financial decline over the next 12 to 18 months as federal relief funds that shored up revenue losses due to COVID-19 start to wane, a recent analysis from Moody’s said.

The analysis, released Monday, finds that cost management is going to be challenging for hospital systems as more surgical procedures are expected to migrate away from the hospital and people lose higher-paying commercial plans and go to lower-paying government programs such as Medicaid.

“The number of surgical procedures done outside of the hospital setting will continue to increase, which will weaken hospital earnings, particularly for companies that lack sizeable outpatient service lines (including ambulatory surgery centers),” the analysis said.

A $175 billion provider relief fund passed by Congress as part of the CARES Act helped keep hospital systems afloat in March and April as volumes plummeted due to the cancellation of elective procedures and reticence among patients to go to the hospitals.

Some for-profit systems such as HCA and Tenet pointed to relief funding to help generate profits in the second quarter of the year. The benefits are likely to dwindle as Congress has stalled over talks on replenishing the fund.

“Hospitals will continue to recognize grant aid as earnings in Q3 2020, but this tailwind will significantly moderate after that,” Moody’s said.

Cost cutting challenges

Compounding problems for hospitals is how to handle major costs.

Some hospital systems cut some costs such as staff thanks to furloughs and other measures.

“Some hospitals have said that for every lost dollar of revenue, they were able to cut about 50 cents in costs,” the analysis said. “However, we believe that these levels of cost cuts are not sustainable.”

Hospitals can’t cut costs indefinitely, but the costs for handling the pandemic (more money for personal protective equipment and safety measures) are going to continue for some time, Moody’s added.

“As a result, hospitals will operate less efficiently in the wake of the pandemic, although their early experiences in treating COVID-19 patients will enable them to provide care more efficiently than in the early days of the pandemic,” the analysis found. “This will help hospitals free up bed capacity more rapidly and avoid the need for widespread shutdowns of elective surgeries.”

But will that capacity be put to use?

The number of surgical procedures done outside of the hospital is likely to increase and will further weaken earnings, Moody’s said.

“Outpatient procedures typically result in lower costs for both consumers and payers and will likely be preferred by more patients who are reluctant to check-in to a hospital due to COVID-19,” the analysis said.

The payer mix will also shift, and not in hospitals’ favor. Mounting job losses due to the pandemic will force more patients with commercial plans toward programs such as Medicaid.

“This will hinder hospitals’ earnings growth over the next 12-18 months,” Moody’s said. “Employer-provided health insurance pays significantly higher reimbursement rates than government-based programs.”

Bright spots

There are some bright spots for hospitals, including that not all of the $175 billion has been dispersed yet. The CARES Act continues to provide hospitals with a 20% add-on payment for treating Medicare patients that have COVID-19, and it suspends a 2% payment cut for Medicare payments that was installed as part of sequestration.

The Centers for Medicare & Medicaid Services also proposed increasing outpatient payment rates for the 2021 fiscal year by 2.6% and in-patient rates by 2.9%. The fiscal year is set to start next month.

Patient volumes could also return to normal in 2021. Moody’s expects that patient volumes will return to about 90% of pre-pandemic levels on average in the fourth quarter of the year.

“The remaining 10% is likely to come back more slowly in 2021, but faster if a vaccine becomes widely available,” the analysis found.





Majority of hospitals not meeting minimum volumes for high-risk surgeries, Leapfrog says

medical surgery

The majority of hospitals are electively performing high-risk surgical procedures without sufficient ongoing experience to safely do so, according to a new report.

The report from The Leapfrog Group, an independent hospital safety watchdog group, looked specifically at surgical volumes. The report, which relied on final hospital data from the 2019 Leapfrog Hospital Survey that had responses from more than 2,100 hospitals, also looked at the minimum standards those hospitals require surgeons to meet in order to gain privileges.

They were looking specifically at the safety of eight high-risk procedures identified by an expert panel as having a “strong volume-outcome relationship.” The report also looks at whether hospitals are working to make sure every surgery is necessary. 

According to the report, an increasing number of hospitals are meeting minimum volume standards if they perform high-risk hospitals. The majority of rural hospitals opt out of performing the high-risk surgeries because they can’t meet the volume standards. Further, more hospitals are implementing protocols to monitor for appropriateness of surgeries.

“The good news is we are seeing progress on surgical safety. The bad news is the vast majority of hospitals performing these high-risk procedures are not meeting clear volume standards for safety,” said Leah Binder, president and CEO of The Leapfrog Group, in a statement. “This is very disturbing, as a mountain of studies show us that patient risk of complications or death is dramatically higher in low-volume operating rooms.”

For instance, the report suggested hospitals should be performing a minimum of 20 esophageal resections for cancer and a minimum of 20 pancreatic resections for cancer to improve the odds of a safer surgery for their patients. Surgeons should perform at least seven and 10 of those procedures a year, respectively, to gain privileges.

But for those two procedures, only 3% and 8% of hospitals met the volume standards for patient safety, the report found.

Hospitals were most likely to meet the safety standard of a minimum of 50 procedures a year for the hospital and 20 procedures a year for bariatric surgery for weight loss. More than 48% reported meeting that standard in 2019, up from 38% in 2018.

The survey found more than 70% of reporting hospitals have protocols to ensure appropriateness for cancer procedures.

But for other high-risk procedures evaluated such as open-heart surgeries or mitral valve repair and replacement, hospital compliance with ensuring appropriateness dropped to a range of 32% to 60%, depending on the procedure.