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.