AHA: Half of U.S. hospitals could be operating in the red by end of year

A new report from the hospital industry predicts half of all U.S. hospitals will be operating in the red by the end of the year unless more federal relief is approved.

The report, released Tuesday by the firm Kaufman Hall and prepared on behalf of the American Hospital Association (AHA), paints a grim picture of the impact of the COVID-19 pandemic on hospital operating margins. It is also released as the Senate returns to work this week and talks for a new relief package heat up.

Hospital margins could sink to negative 7% in the second half of 2020, and half of all hospitals are likely to operate with a negative margin, the report said.

Hospitals were slammed financially by low patient volume and cancellation of elective procedures to preserve capacity to combat COVID-19.

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Normally, hospitals overall operate with a 3.5% operating margin. But margins are expected to drop to negative 3% in the second quarter of this year, Kaufman found.

That drop would have been negative 15% without funding from Congress, which gave providers $175 billion a few months ago.

“However, even with these funds, hospital margins are still expected to drop to negative 3% in the second quarter of 2020,” the AHA said in a release.

Hospital executives on an AHA call with reporters underscored the need for additional federal funding.

“Without the federal support we would have run out of cash and been forced to shut down the hospital,” said David Perlstein, M.D., president and CEO of SBH Health System in the Bronx in New York City.

The pandemic has cost Grady Health System in Atlanta $115 million, CEO John Haupert told reporters. About $70 million of that has led to a reduction of elective surgeries and another $45 million from increased expenses such as PPE.

A separate AHA analysis finds that the COVID-19 pandemic could cost hospitals $323 billion through the end of 2020.

Hospitals on the call said that their margins have taken a major hit not only by cancelling elective procedures but also due to higher prices to get personal protective equipment.

Harrison Memorial Hospital, a rural facility in Kentucky, aims to get a 0.6% operating margin in a good year.

Now “we are at a negative 25% margin,” said hospital CEO Sheila Currans.

The AHA and Currans said they are not only pressing Congress for more relief funds but also to change the terms for repayment of Medicare advance payments.

The Centers for Medicare & Medicaid Services (CMS) has doled out $100 billion in advance and accelerated payments to facilities at the onset of the pandemic in March. The program has since been suspended.

But the AHA and other hospital groups are worried the bill is coming due for those advance payments and that CMS could start to garner Medicare claims for facilities that could not repay starting next month.

AHA President and CEO Rick Pollack told reporters that the group is in talks with lawmakers over the need for changes to the program. The association is seeking for Congress to pass legislation to forgive the loans.

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Currans said she wrote to Senate Majority Leader Mitch McConnell, R-Kentucky, to press for relief on the loans.

Congress is expected to pass another round of COVID-19 relief this month before enhanced unemployment benefits expire July 31.

McConnell said on the Senate floor Tuesday that healthcare and relief for providers will be a major pillar in the next relief package but did not give specifics.

“The reason is obvious,” McConnell said of the need to focus on healthcare. “If we lose control of the virus or if research stalls, then everything else will be window dressing.”