Hospitals Struggle to Break Free of Pandemic’s Financial Toll

Federal assistance from the CARES Act is exhausted, forcing many organizations to seek emergency help from FEMA.

Over two years into the COVID-19 pandemic and the effect of the virus is still wreaking havoc on the finances of hospitals and health systems.

These organizations did see some relief thanks to the federal assistance provided at the outbreak of the pandemic, primarily through the CARES Act. But federal relief funds have largely stopped for most healthcare organizations, forcing many to apply for FEMA funding to help with steep costs related to ongoing PPE equipment and contract labor needs.

"When the funding administered by Health and Human Services, through the Provider Relief Fund, was disbursed, many systems initially felt the funding would be enough," says Jill Powell, partner and principal for the insurance and federal claims practice of EY—formerly Ernst & Young. "But as the pandemic has gone on, and there have been additional COVID-19 variants, the monies did not last as long as anticipated."

Which COVID relief funds were available

In terms of COVID relief funds, healthcare systems received funding primarily through the CARES Act via two mechanisms, Powell says.

The first was the Provider Relief Fund, which was administered by the Health & Human Service Department (HHS). This fund was meant to cover the gap in revenue due to the shutdown of non-essential procedures along with skyrocketing expenses.

The second mechanism was the Coronavirus Relief Fund, which was administered through the Department of Treasury. This fund provided money to state and local governments, and some states then allocated part of these funds to healthcare assistance.

"Additionally, healthcare systems applied, and continue to apply for, funding through the Federal Emergency Management Agency (FEMA) to assist with ongoing COVID-19-related eligible expenses as well as other state and local grants," Powell notes. "But this covers only certain eligible expenses—such as personal protective equipment (PPE), other equipment and labor—not lost revenue."

Where relief assistance isn’t helping

Financial leaders with Northern Arizona Healthcare, in Flagstaff, Arizona, can attest to the difficulties healthcare providers are facing now that federal funds have dried up.  

Confirming the continued financial challenge that hospitals face due to COVID is Clifford F. Loader, CFO at Northern Arizona Healthcare.

"The funds we received were incredibly helpful," says Loader. "They let us remain financially solvent during a general slowdown in our cash flow combined with rapidly increasing expenses. We are grateful for the help. However, the after-effects of the pandemic—such as a general shortage of healthcare providers such as doctors and nurses, and continuing inflation in the pricing of medical supplies and pharmaceuticals—are ongoing. With no further funds anticipated, the healthcare industry is facing adverse financial impacts."

Northern Arizona Healthcare and its subsidiaries—Flagstaff Medical Center, Verde Valley Medical Center, and Northern Arizona Healthcare Medical Group—participated in four rounds of CARES-related Provider Relief Funds, Loader says. 

"In so much as the previous PRF funds helped us to invest in replacement capital as equipment aged out, helped us avoid layoffs of key personnel, and helped us maintain adequate stocks of much-needed PPE, it positioned us to be better prepared for the next surge than had we not been able to accomplish all of those things," Loader explains. "However, if there is another surge, and we do not receive any more relief funds, we will likely struggle to handle the surge after that."

The first round of PRF funds was allocated proportionately to annual net revenue, Loader says. This likely disproportionately benefitted healthcare providers in more affluent areas, to the detriment of providers in economically depressed areas. 

"If there are future PRF funds being considered, [the government should] perhaps allocate those funds based on the number of COVID patients treated instead, as subsequent payments were," Loader says.  "We would also like it to be more clear, up front, what uses are allowed and which are not. The dynamic nature of the guidance has been challenging for reporting purposes."

Reporting challenges and audit possibilities

The reporting process is under scrutiny this year, Powell cautions.

"With any federal funding, such as the funding administered through HHS and FEMA, there are requisite reporting requirements," Powell says. "HHS has also noted that they will also be performing audits of the use of the funds that were received [by organizations], to ensure they comply with the terms and conditions, and in some instances, those audits have started."

"The accountability requirement is the reporting," Powell continues. "With the HHS funding, healthcare systems have to provide reports on a quarterly basis and there will be audits. The audit letters from HHS have already started going out to different providers around the country."

FEMA has always had certain reporting requirements, and Powell says hospitals and healthcare systems can expect there will be Department of Homeland Security Office of Inspector General audits related to the FEMA funding disbursed in the future.

The good news is that hospitals and healthcare systems should be able to handle another surge or variant with the assistance they have received. They are also better equipped with supplies and general knowledge about how to treat COVID.

"The main issue continues to be the shortage of labor," Powell says, confirming the point made by Loader. "Labor issues as a result of the pandemic are going to be an ongoing problem for years to come and if a solution isn’t found, it will greatly impact healthcare providers and the way care is provided."

Reflecting on the last two years, Powell says there could have been better coordination between the federal, state, and local governments along with the nonprofits.

"However, we must caveat this by saying that everyone did the best they could with the knowledge they had at the time," Powell says. "Looking back to 2020, no one knew the severity of the situation or what the ramifications of this virus would be. COVID-19 is going to have a substantial impact on the fabric of our healthcare system; there will be long-lasting direct and indirect collateral damage from the pandemic."