The Pandemic One Year in: Providers Struggle with Loss of Revenue

Although TV footage has shown hospitals overflowing with patients since the COVID-19 pandemic hit the U.S. last March, the coffers of many hospitals and other healthcare providers are far from overflowing. In fact, they are running dry because millions of Americans didn’t get medical care last year and are continuing to put it off this year. “Folks actively avoided going to the emergency department,” says Aaron Wesolowski, vice president of policy research, analytics and strategy for the American Hospital Association (AHA).

Utilization of in-patient and out-patient care also decreased. As a result, hospitals and healthcare systems lost at least $323 billion in 2020, according to a recent AHA report. At the start of 2021, the number of people going to the hospital remained low, leading to reduced hospital revenue. The decrease in patient volume “that drove revenue losses in a lot of cases [in 2020] is still present,” Wesolowski says.

It’s not just hospitals that have been affected. Providers of all kinds — primary care physicians, specialists, dentists, clinics — have experienced sharp declines in patient volume. Because they have many days of cash on hand and access to capital, healthcare systems anchored by large hospitals should be able to weather the months of low revenue. But for many medical practices, particularly primary care practices, the circumstances are dire, as the pandemic is now casting a long shadow over 2021. Independent physicians “are small businesses without big financial reserves,” says Sean Cavanaugh, M.P.H., chief commercial officer and policy officer for Aledade, a Bethesda, Maryland, consulting company that advises and partners with primary care physicians.

Hospital losses

From March 2020, when cases started to spike in the U.S., through June, hospitals and health systems lost an estimated $202.6 billion, according to the AHA. Utilization bounced back some during the second half of the year. Still, the association estimated that hospitals would lose at least $120.5 billion more from July to December. In addition to dealing with revenue losses from declines in utilization, hospitals had to purchase more personal protective equipment and other supplies.

A survey of 275 hospitals by Strata Decision Technologies found that emergency department visits dropped by 50% initially in March and were still down by 25% in September as compared with data from 2019.

Inpatient volumes in September were approaching 2019 levels, but inpatient surgeries and procedures were down 18.6% overall, Strata’s survey showed. Outpatient volumes initially dropped by 56%, but by September they had were down just 1.5% compared with the previous year, according to the survey results. “Recovery is not evenly distributed, as some areas have come back strongly, while other care areas still lag,” the survey’s authors wrote. In COVID-19 inpatient volumes did not surge as expected, they noted, and did not replace the dramatic decline in total admissions. Although the cost of treating patients with COVID-19 is covered by Medicaid, Medicare and private insurers, “it has not completely offset revenue losses” from the lack of delivery of other hospital-based medical services,” Wesolowski points out.

The plight of hospitals hasn’t gone unnoticed. The Coronavirus Aid, Relief and Economic Security (CARES) Act, which Congress passed in March, sent $100 billion to hospitals and other providers. According to AHA estimates, another $75 billion in relief funds was earmarked for providers under the Paycheck Protection Program. But as of October, only $70 billion had reached hospitals, according to the AHA. Moreover, reports by ProPublica, an investigative journalism organization, and others have cast doubt on whether the relief money went to those that needed it most. “How the CARES Act Forgot America’s Most Vulnerable Hospitals” was the headline on a ProPublica story in January about rural hospitals not receiving money from the coronavirus relief bill.

A report by healthcare consultancy Kaufman Hall, done for the AHA in July, found that even before COVID-19 hit, some hospitals were coping with negative margins, and the median hospital margin was 3.5%. A January 2021 report from Kaufman Hall found that without CARES Act funding, the median hospital operating margin was down 4.9 percentage points. With the funding, it was down 1.2 percentage points. Meanwhile, more than 36 hospitals have gone into bankruptcy, according to an AHA fact sheet from November.

Roger B. Weems, vice president of advisory services at Premier, a group purchasing organization in Charlotte, North Carolina, that has branched out into healthcare analytics, says he has seen major differences in healthcare usage among providers. Although providers in certain geographic areas have placed elective surgeries on hold for months, others are almost back to pre-COVID-19 levels, he says. The lack of elective procedures “is the core financial challenge they are trying to recover from,” Weems says.

Going forward, there may be a shift in where care is delivered, Weems says. Some care that is currently provided on an inpatient basis might be done in an ambulatory care setting. “Many hospital systems have been contemplating it for a long time,” Weems says.

Other providers affected

Physicians also are dealing with the financial fallout from the pandemic. Of the 3,500 physicians surveyed by the American Medical Association (AMA) last summer, 81% reported that revenue was lower than pre-pandemic levels, with an average decline in revenue of 32%. Cavanaugh says that the independent primary care physicians that Aledade works with saw patient visits immediately fall 30% to 40% when the pandemic began. As a result, some practices laid off staff and a few closed. The number of patients has fluctuated depending on the whether the pandemic is easing or flaring up, Cavanaugh says.

Although telehealth usage soared during the pandemic, 70% of physicians surveyed by the AMA reported they were providing fewer total visits — both in-person and virtual — than before the pandemic began.

The surge in telehealth occurred partly because Medicare and HIPAA rules were relaxed. Also, many insurers moved to reimburse telehealth visits at the same rate as in-person care. Now the question is whether the rules and the reimbursement rates will be changed permanently.

Lesley Reeder, RN, vice president at COPE Health Solutions, a healthcare consulting firm in Los Angeles, says many primary care physicians will continue to see fewer patients than they did before the pandemic. They are spacing out visits to ensure that there is ample time for cleaning between appointments. “Medical facilities are so tuned in to ensuring they are not a vector for infection for the patients they serve,” she says.

Despite telehealth having been “a real boon,” Reeder says, limitations remain because certain types of care, such as doing blood work, require in-person visits.

The majority of respondents to the AMA survey rated financial assistance from the CARES Act, the Paycheck Protection Program, and the CMS Accelerated and Advance Payment Program as extremely or very helpful. Cavanaugh notes, however, that applying for assistance from those programs was difficult for independent physicians who didn’t have an attorney or accountant on staff to shepherd the application and gather all the necessary documentation. “It’s really intimidating to small businesses,” he said.

Acting as accelerant

Experts believe the pandemic will lead to permanent changes in American healthcare even as cases and deaths decline. “My instinct is that many primary care physicians and small specialists will look to larger organizations to partner with going forward,” Reeder says, leading to more mergers and acquisitions.

The pandemic also is likely to accelerate the move to value-based care, which can reorient financial incentives so providers are paid according to patient outcomes and not simply by the number of procedures done or tests ordered. The pandemic “highlighted the need to focus on value-based payment arrangements. Those [providers who] were in that arrangement clearly fared better,” said Matt Eyles, president and CEO of America’s Health Insurance Plans, headquartered in Washington, D.C., during a payers meeting last summer organized by Becker’s Healthcare.

“The addiction to fee-for-service has struck health systems in a real way,” Craig E. Samitt, president and CEO of Blue Cross and Blue Shield of Minnesota, said during the same meeting. As a result, there may be “a stronger appetite to take risks and pursue value,” he noted.

“Accelerating the path to value will ultimately enable better healthcare to be delivered,” Weems says.

Susan Ladika is an independent journalist in Tampa, Florida, who covers healthcare and business.