Pandemic Aid Drove Record-Breaking Hospital Revenues, Except in Hispanic Communities

Steph Weber

July 19, 2023

The COVID-19 public health emergency (PHE) certainly affected hospital finances, but government aid may have given some organizations' bottom lines an oversized boost. A new study published in JAMA Health Forum found that many hospitals achieved all-time high financial positions 2 years into the pandemic despite rising supply and labor costs, suggesting that they may have received too much relief funding.

Researchers from RAND Corporation evaluated the 2020 and 2021 financial performances of 4423 hospitals using each organization's net operating income, calculated as operating revenue minus operating expenses.

Median operating margins reached record highs — rising to 6.5% by 2021 compared with 2.8% pre-COVID — a sign that the funding amounts at the time may have been larger than necessary to return most hospitals to pre-pandemic baselines, said the study's authors.

Teaching hospitals and those in highly urban areas or with disproportionate share hospital (DSH) status received the most funding. Although not-for-profit hospitals received, on average, $5.4 million more than for-profit entities, the latter's lower funding did not place them at greater risk for financial distress. Hospitals affiliated with health systems could have managed the financial ups and downs of the acute phase of the PHE without relief funding, according to the study.

Overall, 80% of hospitals received relief funds during 2020 and 2021, and the majority (75%) remained profitable. For comparison, one third (36%) of hospitals had negative profit margins heading into the pandemic compared with 23% of hospitals in 2020 and 2021. Nearly 1 in 5 hospitals improved their financial performance enough during the pandemic to move from a negative to a positive standing.

Aaron Wesolowski, MBA, vice president of policy research, analytics, and strategy at the American Hospital Association, told Medscape Medical News that it's important to remember that each hospital had unique financial situations coming into the pandemic.

"Incomplete analyses like this study are not reflective of the many immense struggles and challenges the hospital field has faced and continues to face, including a workforce shortage crisis, along with skyrocketing input costs for supplies, equipment, drugs and labor, and persistent inflation," he said.

Relief funding, like the Coronavirus Aid, Relief, and Economic Security (CARES) Act and Medicare add-on payments, helped hospitals offset the loss in patient volume and non-COVID services during the early days of the pandemic. In addition, it assisted hospitals in acquiring personal protective equipment, creating isolation wards, and paying lucrative contract rates to attract travel nurses and physicians, said the study's authors.

About 16% of hospitals reported negative net operating incomes and worse financial performances in 2020 and 2021 than in pre-pandemic years. If PHE funding was excluded, about half of the hospitals would have fallen into this category, indicating that supplementary aid probably stabilized some organizations' fiscal health.

The relief funds were particularly beneficial in maintaining sound financial footing for government-owned hospitals, Medicare and Medicaid DSH hospitals, and those serving Black populations. Still, hospitals with higher Hispanic populations, about 19% of hospitals in the study, experienced more financial distress even after accounting for pandemic aid.

Glenn A. Melnick, PhD, professor at the University of Southern California Sol Price School of Public Policy and Blue Cross of California Chair in Healthcare Finance, told Medscape that although initial government subsidies may have been excessive and not well targeted owing to the speed of the rollout, they probably provided a necessary buffer.

"After COVID funds stopped in 2022, hospitals got hit by sustained higher expenses and reduced nonoperating income due to the stock market drop," said Melnick, whose study on how California hospitals fared financially during the pandemic showed similar findings. "The 2021 money gave hospitals a cushion going into a tough 2022 and likely 2023."

This year remains rocky for hospitals, said Wesolowski, with nearly half still reporting negative margins, based on recent data from Kaufman Hall placing the median year-to-date operating margin at 0.3%.

JAMA Health Forum. Published online July 14, 2023. Full text

Steph Weber is a Midwest-based freelance journalist specializing in healthcare and law.

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