California Hospitals Suffer Massive Losses From Fewer Patients, COVID-19 Expenses

Jun. 4--California hospitals lost at least $3.2 billion a month during the first wave of the COVID-19 pandemic as they made preparations for a potential flood of patients, bought new equipment and canceled non-emergency medical procedures, according to a report from the nonprofit California Health Care Foundation.

The report, released Wednesday, highlights how dramatically the shutdown orders throughout California damaged the bottom line of hospitals as they cleared space for potential COVID-19 patients at the same time many people avoided trips to the emergency room because the number of coronavirus cases was spiking.

"I don't think hospitals are going to recover for some time to come," said Dr. Glenn Melnick, a professor of public policy at the University of Southern California and the co-author of the report. He said much of his research comes from work he's done on his own in the field but that he also interviewed hospital executives and studied data from a company that tracks hospital admissions nationwide.

In the first month of shelter-in-place orders, California hospitals saw an estimated 50 percent reduction in revenue, the report said. Though there were gradual improvements as shelter-in-place orders began to loosen, the report estimates the average revenue for California hospitals fell by $3.2 billion a month during March, April and May, and are projected to be the same for June.

Total losses so far: At least $10 billion, according to the report and the California Hospital Association.

Carmela Coyle, president and CEO of the hospital association, said the report "confirms the depth of the other crisis we are now facing -- a 'financial shock' to hospitals so severe that it will impede hospitals' ability to keep staff, prepare for a COVID resurgence, and care for their communities."

Some of the hospital losses in revenue were offset by the federal Coronavirus Aid, Relief, and Economic Security Act and the Paycheck Protection Program and Health Care Enhancement Act. California hospitals received a bit less than $3.5 billion in CARES funding, and providers collectively received $5.3 billion.

Hospital leaders have called on Gov. Gavin Newsom and state legislators to provide more financial relief both from this year's state budget and in the 2020-21 financial plan. So far, neither request has been granted, said CHA spokesperson Jan Emerson-Shea, but the association is continuing conversations with the governor's office and lawmakers.

At the same time they were losing patients, California hospitals' expenses grew significantly as they converted general medical beds to ICU beds, equipped more beds with heart monitors, oxygen monitors, and ventilators.

They added negative-pressure rooms to isolate COVID-19 patients, constructed temporary structures in parking lots and cafeterias, leased closed hospitals, convention centers, and sports arenas, purchased testing supplies and PPE, created emergency operation centers, and expanded laboratory testing, among other expenses. Like many businesses around the state, hospitals also equipped employees to work remotely.

All of this was designed to meet the demands of the pandemic and comply with Newsom's request that the state's hospitals increase their inpatient bed supply from 80,000 to 130,000. A survey of 800 US hospitals found that expenses-per-discharge rose approximately 18 percent in March 2020, compared with expenses in March 2019.

As hospitals' expenses grew, the volume of patients seeking inpatient and outpatient care fell considerably, according to the report. In the 60 days after hospitals discontinued elective and non-urgent care, outpatient services, which normally account for 40 percent of the total patients in California hospitals, decreased by more than 50 percent.

Emergency department visits, which account for 60 percent of the patients in California hospitals and are generally hospitals' most important source of revenue, dropped by 40 percent to 60 percent in the same period of time, the report said.

The report's co-author, Dr. Melnick, said the losses in emergency rooms could last until people feel secure being around other sick patients.

"People are not going to rush back until they feel safe," he said. "Who are the people who go to the emergency room and to the hospital? These are generally high-risk people, so they're going to delay until they've really got to go. I don't see demand getting back to normal until maybe there's a vaccine."

Though hospital staff has been redirected to "hot-spots" within and across hospitals, the reduced demand for both emergency and scheduled hospital services had caused at least 11 California hospitals and health systems to announce layoffs, furloughs, reduced hours, salary reductions, and decisions for staff to take an accrued vacation by early May, according to the report by CHCF.

The report showed that fewer patients have been hospitalized for COVID-19 symptoms than researchers originally projected.

From April 1 to May 15, an average of 4,938 patients per day was hospitalized for COVID-19 statewide. Those COVID-19 patients represented about 5 percent of the statewide bed capacity, including the surge capacity added through hospitals efforts to prepare for the pandemic.

Loss of insurance coverage

As the COVID-19 pandemic leads into an economic recession, the authors of the CHCF report worry that shifts in insurance coverage status will create a longer-term impact on hospital finances.

The authors estimate that the amount of Californians with commercial health insurance will drop from 55 percent to 47 percent, as some Californians lose employer-sponsored health coverage in the coming months

Though Californians with commercial insurance accounted for 27 percent of all hospital utilization before the pandemic, they generated 40 percent of total revenue for California's hospitals. As those with commercial insurance transition to public health insurance coverage, the authors of the report estimate a $16.4 billion decrease in total hospital billed charges, and a decline in revenue from commercially insured patients of $5.85 billion.

The authors of the CHCF report suggest that long-term impacts of COVID-19 on hospitals could include increased costs of healthcare, possibly making commercial health insurance more expensive.

Other possible long-term impacts include opportunities for telehealth to play a permanent role in California's health care system and opportunities for increased communication between providers and hospitals. This kind of communication has already played a role in hospitals' responses to the pandemic, enabling them to balance demand and resources by sharing information and, in some cases, transferring patients, the report says.

Gerald Kominski, a professor of health policy and management at the UCLA Fielding School of Public Health, said that the financial impact on hospitals is a "terrible irony" of the COVID-19 pandemic.

"Every day we're seeing people who've been in the hospital for weeks, in some cases, months. They are alive today because of the tremendous efforts of hospitals throughout the state," Kominski said. "So, one of the essential components in our fight against COVID and keeping people alive, especially those who get seriously ill as a result of this disease -- those institutions are simultaneously suffering, being threatened with possible closure, because of the effect on their revenue streams."

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