In a July 21, 2020 American Hospital Association (“AHA”) Press Release, the AHA announced the results of a new analysis prepared by Kaufman, Hall & Associates, LLC that, “highlights the dire impact of the COVID-19 crisis on the financial health of hospitals and health systems.”  According to the Press Release, the analysis shows that, without further government support, margins could sink to -7% in the second half of 2020, with half of all hospitals operating in the red.  In this same Press Release, the AHA referenced its own studies that estimate a minimum of $323.1 billion in COVID-19 – related financial losses for hospitals and health systems in 2020.

In this article, we will consider the financial impact that the current public health emergency has had on hospitals and other healthcare provider types, including home health agencies and skilled nursing facilities.

HOSPITALS

As noted above, hospitals across the country have experienced tremendous financial losses as a result of the COVID-19 public health emergency. In its above referenced reports, the AHA attributes the decline, in part, to a number of factors including a significant decline in elective/non-emergency procedures and patient care services in compliance with state and local public health measures and CDC guidelines.

According to a June 2020 AHA study, “Hospitals and Health Systems Continue to Face Unprecedented Financial Challenges due to COVID-19,”  responding hospitals surveyed by AHA reported an average decline of approximately 20% in inpatient volume and 34.5% in outpatient volume in comparison to the 2020 baseline patient volume.  In addition, more than 2/3rds (67%) of the surveyed hospitals reported that their volumes will not return to pre-pandemic levels for the rest of 2020.  AHA projects that the return to baseline will likely not occur until at least July 2021.

In addition to decreased patient volumes, AHA identified other factors contributing to the precipitous decrease in hospital revenue including: (i) restrictions on hospital volume to preserve vacant beds for the provision of COVID-19 related care;[1] (ii) state-specific requirements to maintain a supply of personal protective equipment (PPE);[2]  (iii) recent spikes in COVID-19 cases in multiple states including Arizona, Florida and Texas; (iv) higher costs for drugs needed to treat COVID-19 patients (i.e. antibiotics, sedatives); (v) increased pay for hospital workers to weather staff shortages; and (vi) increased uncompensated care costs due to the increasing numbers of uninsured patients.

HOME HEALTH AGENCIES

Whereas the Patient-Driven Groupings Model (PDGM) and its unintended ripple effects across the Medicare-certified home health provider community were supposed to be the dominant story this year for the nation’s Medicare-certified home health care providers, the COVID-19 public health emergency has rewritten the script for 2020, throwing most of the industry’s previous financial projections out the window.

According to a national survey conducted by the National Association for Home Care & Hospice (NAHCH) from June 3 to June 18 in which responses were sought for May 2020, more than 82.4% of reporting home health providers experienced material revenue reductions in May.  Approximately 82.4% of respondents reported revenue reductions with a median reduction between 15% and 20%.  Approximately 26.2% of respondents reported reductions in excess of 20%, while approximately 45% of respondents reported reductions in excess of 15%.  NY and NJ, then COVID-19 pandemic hot spots, reported even higher reductions – 45.8% of respondents reported revenue reductions greater than 15%, and 37.6% of respondents reported revenue reductions greater than 20%.

Notwithstanding the continuing losses, some home health industry leaders remain hopeful.  For example, according to Paul Kusserow, Chief Executive Officer and President of Amedisys, “We believe that a lot of the support has stopped or postponed the shakeout that’s occurring in home health — or that we anticipated would be occurring around this time,” Nevertheless, Mr. Kusserow notes, “We don’t believe it’s over, though.”[3]

ASSISTED LIVING FACILITIES INCLUDING SKILLED NURSING FACILITIES AND NURSING HOMES

Assisted living facilities (ALFs) including skilled nursing facilities (SNFs) and nursing homes (NHs), which have largely been considered ground zero for  COVID-19 cases, are reported to be in dire need of financial assistance. In the case of NHs, healthcare analysts have noted that NHs are particular susceptible to the consequences of COVID-19-related revenue losses due to a history of underfunding.

For example, in testimony given before the United States Senate Committee on Finance on March 6, 2029, David Grabowski, Ph.D., Professor, Department of Health Care Policy, Harvard Medical School, said that, “Due in part to the exclusion of long-stay nursing home services from the Medicare benefit, Medicaid is the dominant payer of nursing home services…. Medicaid payment rates are typically 70-80% of private pay prices.”  Given their reliance on Medicaid reimbursement, NHs and ALFs in general operate on razor-thin margins.  As reported to Congress by the Medicare Payment Advisory Commission (MedPAC) in its March 1, 2020 report, “Report to the Congress: Medicare Payment Policy,” “In 2018, the average total margin – reflecting all payers (including managed care, Medicaid, Medicare, and private insurers) and all lines of business (such as skilled and long-term care, hospice, ancillary services, home health care, and investment income) – was –0.3 percent, down from 2017 (0.6 percent).”

As a result of the above-cited underfunding in the ALF industry, the significant COVID-19-related financial losses to ALFs have put the industry at risk.  In its June 10, 2020 report, “Financial Crises of the Nursing Home Industry,” the American Health Care Association/National Center for Assisted Living (“AHCA/NCAL”) cited the following April 29, 2020 statements made by Ira Bedzow, MA, PhD, Associate Professor of Medicine, UNESCO Chair of Bioethics – New York Medical College:

  • “Lost revenue is estimated at around 8 to 23 percent. Because of COVID-19, [adult residential] communities cannot continue move-ins or use revenue from new residents to counteract these expenses. All in all, lost revenue and an increase in expenses are projected at $40 billion to $57 billion over the next year. This means that many homes will fail;” and
  • “Increases in non-labor costs (infection control supplies and PPE) for [an adult residential] community without a COVID-19 positive case can be up to 73 percent. For communities with a COVID-19 diagnosis, it can be up to 103 percent.”

FEDERAL FINANCIAL ASSISTANCE

In efforts to shore up the healthcare system and stem provider financial losses, the federal government has taken action.  Such actions include:

  • As reported in our March 30, 2020 blog post, “Key Health Care Provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”)” and in subsequent blog posts, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted on March 27, 2020. Among the many appropriations and federal program actions authorized by the CARES Act, Congress appropriated $100,000,000,000 to be provided to Medicare and Medicaid enrolled suppliers and providers in response to the healthcare-related expenses and lost revenues that such providers and suppliers were experiencing due to the COVID-19 public health emergency.
  • In an April 2, 2020 Press Release, CMS announced that $34 billion in additional funding from the Hospital Insurance and Supplemental Medical Insurance Trust Funds was being allocated to establish CMS’s Accelerated and Advance Payment Program (the “Advance Payment Program”). Under the Advance Payment Program, hospitals, medical groups, durable medical equipment suppliers and other Medicare-participating providers and suppliers can apply for and receive loans equal to three months (and in some cases, six months) of their Medicare reimbursements to help defray the financial losses created by the COVID-19 public health emergency.
  • On April 10, 2020, the Department of Health and Human Services (“HHS”) began distributing $30B of the $100B appropriated in the CARES Act to the newly established CARES Act Provider Relief Fund. See, April 13, 2020 blog post, “HHS Distributes First $30B of CARES Act Provider Relief Fund – What Providers Need to Know and Do Next.”
  • In a May 22, 2020 Press Release, HHS announced that it was in the process of distributing nearly $4.9 billion in new funding to nursing facilities impacted by COVID-19.
  • In a June 9, 2020 Press Release, HHS announced that it would distribute approximately $15 billion in additional funding to providers who participate in state Medicaid programs and have not yet received a payment from the Provider Relief Fund General Allocation. The announcement also included plans to issue $10 billion to hospitals through a second High Impact Distribution.
  • As indicated in its June 9, 2020 Press Release, HHS announced in a July 17, 2020 Press Release that it would begin distributing $10 billion in a second round of funding to hospitals operating in high impact COVID-19 areas. See, July 20, 2020 blog post, “More Money On the Way in COVID-19 Fight: HHS Announces Additional $10B for Hospitals in High Impact COVID-19 Areas.”
  • In a July 22, 2020 Press Release, HHS announced that it will devote $5 billion of additional funding to the Provider Relief Fund for Medicare-certified long term care facilities and state veterans’ homes (“nursing homes”), to build nursing home skills and enhance nursing homes’ response to COVID-19, including enhanced infection control.

ENOUGH?

Notwithstanding the increased federal funding and financing programs being implemented under the CARES Act and other legislative and administrative initiatives, industry leaders say more is needed.

In his commentary on HHS’s July 22, 2020 announcement of additional funding for nursing homes, Mark Parkinson, President and CEO of the AHCA/NCAL, said that, “While this funding is a significant step forward, it is equally important for Congress to provide an additional $100 billion for the HHS Provider Relief Fund, which is accessible to all health care providers impacted by COVID-19, and that a sizeable portion of the fund be dedicated to helping both nursing homes and assisted living communities​ to cover the enormous costs associated with protecting vulnerable residents and staff from the virus.”

Similarly, in a July 22, 2020 Press Release from LeadingAge, an advocacy organization representing healthcare and social services providers serving older adults and the disabled, Katie Smith Sloan, LeadingAge President and CEO, expressed happiness regarding the additional funding being provided under the CARES Act, but also stressed caution.  Sloan warned, “Tonight’s announcement of $5 billion for nursing homes from the Provider Relief Fund is a good next step, but any effort must be backed by a coordinated national plan that will help protect millions of older adults.  She emphasized, “What vulnerable older adults and their care providers really need–in nursing homes and across all settings — is meaningful support from Congress in the next COVID-19 relief package and a comprehensive strategy from the White House, and we need aging services providers placed at the front of the line alongside hospitals.”

In the July 21, 2020 AHA Press Release referenced at the outset of this article, AHA President and CEO Rick Pollack expressed AHA’s appreciation for federal funding that hospitals have been provided through the CARES act, but maintained that more is needed. Pollack stated, “Heading into the COVID-19 crisis, the financial health of many hospitals and health systems were challenged, with many operating in the red. This pandemic is the greatest financial threat in history for hospitals and health systems and is a serious obstacle to keeping the doors open for many. While we appreciate the support from the Administration and Congress, we need further help to stay afloat to continue our mission of caring for patients and communities.”

In addition to the financial relief described above, providers, provider associations and other healthcare advocacy groups have asked the federal government to provide relief in the form of programmatic changes to the Medicare, Medicaid, and other governmental healthcare payment programs as a means to provide much needed relief to the healthcare community.  For example, in a May 1, 2020 letter to Congress, the AHA and the American Nurses Association requested that the federal governmental provide loan forgiveness for accelerated payments made under the Medicare Accelerated Payment Program; allow investor-owned hospitals to participate in Federal Emergency Management Agency funding programs without state contracts; lift the cap on graduate medical education slots; repeal the Institutions for Mental Diseases exclusion until one year after the pandemic; and increase outlier payments and extend the eligibility of the diagnosis-related group add-on to long-term care hospitals.

WHAT’S NEXT?

On July 27, 2020, Senate Republicans officially introduced a $1 trillion COVID-19 relief package – the Health, Economic Assistance Liability Protection and Schools, or HEALS Act – that seeks to extend relief efforts previously implemented as part of the CARES Act.  (See, Press Release issued by Senate Majority Leader, Mitch McConnell, on July 28, 2020). According to the HEALS Act provisions that were announced on July 27th (as of this writing a full bill has yet to be released), the HEALS Act includes $16 billion for COVID-19 testing, an additional $3.4 billion for the Centers for Disease and Infection Control (CDC), $2 billion to supplement the Strategic National Stockpile of protective gear and medical supplies, $7.6 billion for community health centers, and a new $25 billion fund to bail out cash-strapped health providers.

Will the HEALS Act be adopted in its current form?   No.

Democrats oppose the package, instead backing a $3 trillion proposal passed by the House in May – the Health and Economic Recovery Omnibus Emergency Solutions Act, or HEROES Act.  Moreover, some Senate Republicans have reported their dissatisfaction with the Bill – the delay in the release of the HEALS Act may be a reflection of disagreements among Senate Republicans that need to be resolved before the full Bill is released.  In whatever form the stimulus bill takes after negotiations between the House and the Senate, questions will be raised within the healthcare community as to the sufficiency of the stimulus bill’s financial and other forms of support being offered to healthcare providers, suppliers, and other healthcare players.

We will follow the stimulus bill negotiations closely and report on the healthcare community’s reaction to the final result.  Stay tuned.

This article is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand.  This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, but which are not referenced in this article.

Check out Sheppard Mullin’s Coronavirus Insights Portal which aggregates the firm’s various COVID-19 blog posts on a broad range of topics. Click here to view and subscribe.

FOOTNTOES

[1] Arizona does not allow hospitals to exceed 80% occupancy.  Ten other states impose a similar policy to reserve 20-30% of licensed or intensive care beds.

[2] Oregon directs hospitals to maintain a 30-day supply of PPE. PPE costs from July through December 2020 are approximately $3.8 billion.

[3] Id.