COVID-19 has decimated the entire economy. The economy has never been negatively impacted to this extent. Prior to COVID-19, the single worst recession event we ever faced was during the The Great Depression. But if we compare the losses of livelihood and financial cripplement of business to the situation we are in now, the Great Depression’s numbers can best be described as peanuts. The unprecedented rise of evictions, sky-rocketing, numbers of unemployment, drastic increase in the number of uninsured and worst of all the ever increasing death toll. This pandemic has impacted all of us in such a profound way that it changed our entire outlook on life.
Compared to all the businesses in general, the healthcare sector has probably been the most impacted by the pandemic. Sure there have been technological advances in the field because of the pandemic, but the revenue stream generated from virtual services pales in comparison to the revenue hospitals and health systems get from elective procedures and normal operations. Majority of the hospitals have structured their finances in such a way that the revenue from elective procedures act as a linchpin. So when the linchpin fell, no one could stop the cascading negative effect it had.
Some Health systems’ quick transition to virtual services such as telehealth and remote patient monitoring did help offset some of their losses, but it did not really help to the extent it was supposed to. It acted as lifeline yes, but a lifeline tethered to a hurricane. No one could predict if and till when the temporary guidelines will exist and this caused a lot of hestatitation among small practices and as a result their business is in a state where it is irrevocable.
One needs to understand that hospitals and health systems barring a few exceptions, were not doing all well before the pandemic. In fact this downtrend of losses started long before the pandemic. A lot of hospitals were in debt and were hemorrhaging money and were barely keeping it together. Some of the fortunate hospitals managed to pull through quarter after quarter with the help of private equity companies. Apart from that a lot of healthcare systems were already staring at the edge of a cliff and COVID-19 has acted as the final push into the abyss.
The only solid deterrent we have had against the financial losses has been the aid received from the CARES ACT. It has greatly helped hospitals get a better handle on the situation. However, regardless of whether the hospitals started virtual services or not and regardless of the funds from CARES ACT, experts say that if the current trend of COVID-19 spread continues then the majority of the hospitals in the country are looking at negative margins financially.
In order to get a better understanding of how bleak the current situation is and to get a better grasp of how much more devastating it can be, The American Hospital Association (AHA) released an analysis report on July 21. The analysis was carried out and prepared by Kaufman, Hall & Associates. The infographic below illustrates the result of that analysis.
Conclusion
From the infographic we can conclude the following:
- Before the COVID-19 pandemic, the median hospital margin was 3.5%. COVID-19 is expected to drive the median hospital margin from positive to negative.
- Without funding from the Coronavirus Aid, Relief and Economic Security Act, hospital margins would have been a negative 15% in the second quarter of 2020.
- Margins are still expected to drop to a negative 3% in the second quarter.
- Without additional aid from the federal government, hospital margins could sink to a negative 7% in the second half of this year.
- In the second quarter of this year, nearly half of U.S. hospitals had negative margins. Those hospitals will remain with negative margins without further financial support.
- The financial impact of COVID-19 has been without a doubt devastating, even with Federal emergency funding, and the financial damage is likely to continue.
This study has shed clarity on an already crystal situation that without continuous government support, hospital systems will be completely crippled, leading to more dangerous consequences.
At BillingParadise, we were able to protect our clients from complete financial ruin through a quick transition into virtual services and accelerated patient engagement. Through improved and innovative patient marketing we enabled them to maintain their patient volume and by providing end-to-end IT support and RCM service to our clients, they were able to cautiously navigate the various stressors of the pandemic.
