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Analysis

Despite Federal COVID-19 Stimulus, Many Hospitals Could Face Layoffs Within Two Months

By Jack O'Brien  
   March 24, 2020

Nearly all hospitals would lose an average of $2,800 per COVID-19 patient case if reimbursement rates aren't raised, according to Strata Decision Technology.

Despite a proposed 20% reimbursement rate increase for treatment of patients infected with coronavirus disease 2019 (COVID-19), many hospitals would not have sufficient cash flows to survive for the next two to three months, according to Strata Decision Technology research released Tuesday morning.

As leaders on Capitol Hill and Department of the Treasury Secretary Steven Mnuchin continue to discuss a federal stimulus package that would raise the Medicare reimbursement rate by 20% for COVID-19 related DRGs, Strata projects that hospitals will lose an average of $1,200 per case, with some providers losing between $6,000 to $8,000 on the high end.

Nearly all hospitals would lose an average of $2,800 per COVID-19 patient case if reimbursement rates aren't raised, according to Strata, with some losing between $8,000 to $10,000 per case. 

Related: COVID-19 Outbreak Threatens Health Systems With New Financial Challenges

The study concluded that without a 35% reimbursement rate hike, many hospitals will exhaust cash flows within 60 to 90 days.

Steve Lefar, executive director of Strata Decision Technology’s StrataSphere line of business, told HealthLeaders that provider executives should be in touch with their respective congressional representatives to urge a more substantial reimbursement rate increase to keep hospitals financially solvent. 

"First, validate your own data, call your senators and [representatives], and tell them that at this point in time, keeping our healthcare workers at work and not worrying about having the ability to stay open or buy equipment because of the cash flow crunch is the most critical issue in the country," Lefar said. "Right now, this is a wartime footing. The healthcare workers and hospitals are on the front line, and they've got to be supported, frankly, more so than other parts of the economy right now."

Related: Coronavirus Threatens The Lives Of Rural Hospitals Already Stretched To Breaking Point

In addition to insufficient reimbursement rates for treating COVID-19 patients, Strata noted that hospitals are financially strapped due to the loss of elective surgeries, a primary source of revenue for provider organizations.

The Centers for Medicare & Medicaid Services released voluntary recommendations on elective surgeries last week, urging providers to cancel non-essential procedures during a pandemic that has spread to all 50 states and killed 400 people nationwide, according to the Centers for Disease Control and Prevention. Several states, most notably New York, have canceled elective surgeries in recent days.

Related: Sen. Chuck Schumer Requests 'Marshall Plan For Hospitals'

The study warned that without significant action from the federal government to relieve financial pressures related to the spread of COVID-19, hospitals will be forced to undergo drastic cost-cutting measures, including laying off "large numbers" of non-clinical workers.

"At best for many of these institutions, unless they have big balance sheets, the only way to get [through 60 to 90 days] is going to be dramatic cost cuts and this is not the right time to be doing that," Lefar said. "There's not really room to start laying off people, nor is it what we want in [terms of] demoralizing the healthcare workforce."

Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.


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