The Financial Impact of COVID-19 on Health Care Organizations

The financial impact of the COVID-19 outbreak is still yet to be seen; globally and across the country, the pandemic has touched every aspect of our lives and our economy.

In this article, we’ll explore the financial implications of this outbreak on health care organizations alone. When considering the number of patients, ICU cases, materials needed for personal protection, procedures and consumables, the costs quickly turn into enormous financial risks for hospitals and other organizations. Across the country, health care entities are keeping their actuaries, accountants and financial analysts busy trying to anticipate both the impending financial risks as well as the cash flow demand and revenue declines that are already occurring week after week.

Because these institutions are still operating, medical staff are working around the clock, and doors aren’t closed, it can be difficult for the public to truly understand how problematic this situation is financially for the country’s health care organizations.

All Bets Are Off Now

From start of the COVID-19 spread in the U.S., the virus was a gamechanger and brought with it a tidal wave of perspective change. Major players pulled their revenue projections off the table immediately, realizing all of those models were going to quickly be shattered in some regions in a matter of days. The revenue impact was manifold – new COVID-19 care costs were far outstripping the available insurance coverage patients would likely have; hospitals were seeing massive spikes in labor costs, overtime and procurement; elective surgeries which have long been a reliable profit stream disappeared as just about every appointment was cancelled to redirect staff and resources. As reported in The Financial Times, New York City is now expecting a $13 billion loss in municipal revenue for 2020 due because of its work absorbing the response cost for its hospitals’ COVID-19 impact.

Immediate financial reaction in any organization facing a sudden, unexpected hit involves tightening the belt and shutting down non-essential functions. According to the American Medical Association interviews with affected CEOs, many systems began to reduce or eliminate part-time players, non-essential fulltime staff, and convenient support systems not directly associated with direct medical care. That in turn triggered immediate cost declines but also led to the furloughs of hundreds of staff. Luckier staff, as noted on NPR, are experiencing pay cuts instead.

Some staff may consider moving from one institution to another; Veterans Affairs hospitals and facilities are reporting being strapped for skilled personnel to help, but government hiring practices may mean this relief is delayed.

A health care worker wears a mask.

Government Help to Date & Alternatives

Public health care systems and hospital organizations quickly turned to the government, which responded with at least $150 billion via the CARES Act and Coronavirus support. However, much of that funding sits in complicated federal distribution channels that take weeks (if not months) to trickle down.

In the meantime, many hospitals are relying on credit lines or are borrowing against federal funds – or are even turning supply needs over to FEMA for delivery and direct support. Others are in direct coordination with state and local government, working independent deals for protective gear and equipment as they can. March and April 2020 were known to be filled with procurement struggles, including interruption by competing levels of government for the same resources.

In hard hit regions or where major benefactors are located, some institutions have relied on private donations. This money has helped in regional and local response, even helping organizations directly fly materials from Asia to the jurisdiction of the hospital for delivery. Others have received local grants to survive.

However, all of the above has simply addressed the most pressing, immediate needs. The COVID-19 pandemic will continue to have an impact until a reliable vaccine or medical treatment is available. And that means 1) the longer outlook for health care systems relies on convincing the public to reduce its exposure and thereby “flatten the curve,” delaying medical care demand over a longer period, and 2) hospitals have to get back to their other services to bring back in alternative channels of revenue for cash flow again (some already have).

What to Expect for the Duration of 2020

If hospitals will remain as they are, they are realizing a burn rate of $1,200 per critical COVID-19 patient. This might seem (relatively) affordable at first glance, until you consider that one out of two patients is uninsured. Even with the massive spending in the CARES Act, health care organizations are going to need far more to get through December and not go bankrupt. The hardest hit will be those operations in the rural communities which to date have been mainly spared so far. Already strapped and cutting staff while stretching what remains, these rural entities have no buffer to take on a local surge.

If anything is abundantly clear, people with both a keen understanding of the modern health care system operation as well as an understanding of financial factors will continue to be in high demand as we navigate a new, post-COVID world. This “command center” mentality is key in dealing with unplanned seismic events like global pandemics, according to Health Leaders Media. These individuals will be heavily relied on to keep many hospital systems afloat in the coming years, especially if COVID-19 lingers into 2021 or if another medical issue develops concurrently.

For students pursuing an Executive Master of Health Administration degree, this period of time serves as a real time lesson in the complexities of running health care organizations. Leaders need a background in a variety of areas to steer their organizations through periods of stress, including accounting, finance, and database management. In addition, an understanding of government grant support systems is vital. All four are bread and butter skillsets competent administrators and finance managers in hospitals have to bring to the table on day one.

Whether in Los Angeles, Miami or New York, hospital administrators will be expected from this point forward to be able to up their game quickly, handle pandemic waves in a command system paradigm, and be able to rely on hardened channels for labor, procurement, supplies and cash flow. Without these changes put in place systematically, COVID-19 is showing everyone how financially fragile the U.S. health care system actually is and where it can and will break down.