Report: Analysis of the Impacts of COVID-19 on Pennsylvania Hospitals
Executive Summary
The Hospital and Healthsystem Association of Pennsylvania (HAP) engaged Health Management Associates (HMA) to summarize the current and future impacts of the novel coronavirus (COVID-19) on hospitals in the Commonwealth. In August 2020, HMA conducted interviews with hospital leaders representing 12 health systems in Pennsylvania. We summarized the information and data shared to develop an analysis of ongoing challenges as a result of the public health emergency.
Patient volume plummeted and will remain well below pre-pandemic levels.
From mid-March to the end of April, Pennsylvania state orders, in line with federal governmental guidance, severely restricted hospitals in performing non-emergent visits and treatment, effectively requiring hospitals to cancel or defer all elective services to prepare for a major surge in COVID-19 patients. The Commonwealth allowed for a phased approach to bring services back online beginning in May, and hospitals saw varying degrees of volume recovery in the following months. Although services have generally reopened, none of the health systems interviewed anticipate recovering all of their pre-pandemic activity levels in 2020. On average, interviewees forecast that inpatient discharges will remain 5% below historical levels, while emergency room visits and surgeries are estimated to be 13% below these hospitals’ pre-pandemic experience for the second half of the year.
Large margin shortfalls occurred across the state, well in excess of federal relief payments.
Between mid- March through July 2020, a 4.5-month period, Pennsylvania hospital systems incurred an estimated $5.0 billion shortfall in operating margin from expected results, before federal relief fund payments. This represents a 24% drop from pre-pandemic revenues over a comparable period and significantly exceeds the estimated $2.8 billion in federal relief funding received to date. Financial losses are expected to continue through 2020 and beyond, and while additional federal relief may occur, the net losses are expected to grow significantly across the industry.
The ongoing health crisis presents substantial challenges on many fronts.
Hospitals are facing the potential for a second surge of COVID-19 infections that could surpass the March/April surge, concerns about workforce stability, and the impact on the population of a weakened economy.
- Flu season and potential second surge: Public health officials are becoming increasingly concerned with the intersection of the upcoming flu season and the pandemic, including a possible second surge. This double impact is likely to cause an increase in patient utilization, acuity, and cost of care, and the difficulty in initially differentiating between the two viruses will create enormous operational obstacles. A critical financial concern is whether a fall/winter surge would require hospitals to curtail non-emergency services, as was the case in March-April of 2020. If so, the revenues losses experienced in the first few months of the pandemic could be repeated, a scenario that would further worsen the financial stability of many hospitals.
- Potential workforce shortages: Health systems are very concerned that the flu and an increase in COVID-19 infections will deplete the workforce as staff contracting the flu virus or exposed to COVID-19 will be unable to work. Hospitals are also beginning to see more early retirements or employees otherwise taking leave because of increased health risks, as well as childcare concerns as many schools are opting for virtual learning this fall.
- A struggling economy: A sharp decrease in economic output has caused many businesses to shut down or downsize and has led to high levels of unemployment. As people lose their jobs, they may also face loss of health insurance and inability to pay out-of-pocket costs. These outcomes have an increasingly negative direct impact on hospital financial performance through changes to payer mix and increasing levels of uncompensated care. Other impacts of a poor economy such as housing instability and food insecurity negatively affect population health and place more burden on hospitals’ community support.
Investment in facilities, equipment and technology is being deferred.
Operating margin shortfalls of the magnitude being experienced by Pennsylvania hospital systems threaten their ability to maintain facilities and infrastructure, invest in the equipment and technologies necessary to provide effective, high-quality care, and sustain their long-term financial viability. Some hospitals have reported they are only replacing equipment as it breaks or threatens patient safety. While a short-term solution, deferral of facility renovation and slowing proactive equipment replacement may result in costly repairs and disrupt patient care in the future.
The long-term viability of some hospitals is threatened.
Several hospital systems had accumulated financial reserves to help them withstand operating losses, but several hospitals have experienced years of inadequate operating margins and entered the pandemic with relatively weak balance sheets. In 2019, the Pennsylvania Health Care Cost Containment Council (PHC4) found that 34% of Pennsylvania general acute care hospitals operated with negative margins. To the extent that the COVID-19 related margin shortfalls of these hospitals exceed their share of federal provider relief payments, their ability to serve their communities and possibly their existence is in jeopardy.
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Topics: Emergency Preparedness, State Advocacy
Revision Date: 9/8/2020
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