Medicare Payment Advisory Commission Estimates Hospital Industry Losses During Pandemic

King & Spalding

On September 3, 2020, the Medicare Payment Advisory Commission (MedPAC) released analysis that estimates hospital losses for April to be between $20 billion and $30 billion due to federal CARES Act grants and facility cost reductions. MedPAC’s research showed that some large for-profit hospital systems actually profited in the second quarter due to federal grants and estimates that federal grants and payment increases will steer nearly $92 billion to hospitals this year.

MedPAC took a sample of three large nonprofit hospital systems and four large for-profit systems that collectively represents approximately 10% of the all acute care hospital revenue to demonstrate how hospitals are withstanding the pandemic. For the for-profit systems, the total reduction in patient care revenue in the second quarter was $3.5 billion compared to 2019, but the systems also reduced expenses by $2.3 billion and obtained federal grants totaling roughly $2 billion. In total, the for-profit systems’ operative profits increased by $634 million and all four for-profit systems saw an increase in profits relative to the prior year. By contrast, for the nonprofit systems, the total operating income declined by $621 million compared to 2019, but after accounting for the CARE Act grants, the operating profit margins for the three systems ranged from a negative 13% to a positive 5% for the quarter.

Also on September 3, 2020, the American Hospital Association (AHA) released a statement noting, “Hospitals do not receive extra funds when patients die from COVID-19. They are not over-reporting COVID-19 cases. And, they are not making money on treating COVID-19.” The AHA has previously reported that financial strain experienced by hospital systems will continue through the end of 2020 and patient volume will remain well below baseline levels. A June 2020 AHA report estimates that the total losses for health systems will be at least $323 billion in 2020 and may underrepresent the full financial losses hospitals will face as the report does not account for increasing case rates in certain states.

A copy of the September 3, 2020 MedPAC presentation can be found here. A copy of the September 3, 2020 AHA statement can be found here, and a copy of AHA’s June 2020 report can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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