As the coronavirus pandemic was sweeping the nation, hospitals across the U.S. were flooded with COVID-19 patients. Of course, this required massive amounts of resources to not only accommodate the influx of patients, but to treat them as well.
Hospitals were short on many equipment necessary to treat the symptoms that patients with the coronavirus had, especially ventilators. To add to the already sparing resources, there was a flagrant shortage of protective gear for medical professionals as well.
This led to the Federal Government coming to the aid of many hospitals in April 2020, passing the Coronavirus Relief Bill and sending millions to hospitals across the United States. Although this alleviated much of the financial burden of some hospitals, others, notably smaller rural hospitals, remained unsure of the rules and regulations tied to these government loans.
COVID-19 Hospital Funding Program
During the beginning of April 2020, the Trump administration announced the immediate distribution of funds to hospitals and healthcare providers that had been affected by the coronavirus pandemic. These funds included $30 billion sent to hospitals and physicians as part of the Coronavirus Aid, Relief and Economic Security Act (CARES ACT). This was the first installment of the $100 billion provided by Congress.
This relief funding for health systems and providers, under the CARES ACT, was to make up for rising health system costs and lost revenue due to COVID-19. It also included money for the purchase of protective gear for staff working with coronavirus patients.
The impact of the virus led to hospitals being forced to turn away elective procedures and often operating at less than 50% as they were bombarded with COVID-19 patients. These sick patients consumed large amounts of resources and were predicted to continue to do so for a long time.
Through thehelp of the UnitedHealth Group, money was expedited to the health systems in need. Initial payments were paid based on the amount hospitals and providers were reimbursed in 2019 under Medicare Fee for Service or Medicare Part A and Part B contracts.
While the final number of the coronavirus aid is close to $200 billion, Chip Kahn, president and CEO of the Federation of American Hospitals voiced: “It provides what we asked for. Are all the resources here the right ones? We’ll find out.” These funds come through not only the CARES ACT Provider Relief Grants, but through other systems such as FEMA reimbursements and the Paycheck Protection Program.
Although the distribution of funds was unclear for many, an example of provisions given to hospitals is the treatment of patients with the coronavirus. A twenty percent bonus for these costs would be immediately given to hospitals. A two percent cut in Medicare reimbursements was also cancelled by the federal government, along with the postponing of payment reductions planned for hospitals that treat many low-income and uninsured patients.
Hospital Spending Fears
The coronavirus pandemic has led to hospitals and health systems across the United States to face revenue losses. In fact, the National Hospital Flash Report of April 2020, published by Kaufman Hall, showed that median hospital operating margins had fallen to –29 percent.
This decline is in part due to the Centers for Medicare and Medicaid Services (CMS) encouraging private practices and hospitals to cancel elective surgeries in preparation for coronavirus patients. Hospitals were incurring higher expenses as they maintained frontline caregivers in anticipation of rising COVID-patients and retained additional staff to cover infected personnel. They were also spending money on maintaining drug, supply and equipment inventories.
All these expenses were continuously incurred while seeing fewer patients than normal as many patients were choosing to skip nonessential or routine care in the fear of contracting the coronavirus. As not all providers have the tools necessary to provide telehealth to their patients, many have faced declining revenue and patients.
These costs and revenue losses explain, in part, the billions of dollars in grants and loans allocated to hospitals and providers. However, each system (FEMA, Paycheck Protection Program and CARES ACT) comes with their own rules and regulations, making it difficult for some, especially smaller hospitals who don’t have accounting departments, to ensure compliance and ability to reimburse when the time comes.
The payment systems are complex, and some hospitals are unsure of applying for some of these funding programs. The programs that require repayment are seen as a liability for some as the need for money is crucial, but the fear of not being able to pay it back is greater.
Information and examples of rules for each include:
- FEMA funding can only cover increased expenses. Unlike the CARES Act, these funds cannot be used to recover lost revenue.
- FEMA requires a 25 percent non-federal cost share.
- Hospitals can be refunded for modifying their existing spaces to be used as emergency care facilities for coronavirus patients. The cost to retransition to its existing space and use is also eligible for reimbursement.
Paycheck Protection Program
- Include loans of up to $10 million for businesses, including healthcare facilities, with fewer than 500 employees.
- Loans can be fully forgiven if business owners can prove, among other criteria, that at least 60 percent of the funds went to payroll expenses.
- Hospitals cannot balance-bill patients for coronavirus care. Hospitals have to file quarterly reports to HHS explaining exactly how the funds were used.
- The great thing about grants is that they don’t need to be repaid, however they need to cover COVID-19 related expenses or revenue losses only.
- Not everything under the CARES Act is a grant. Hospitals have 13 months to repay funds received under a branch of the CARES Act, notably the Medicare Accelerated Payment Program. Failure to pay back the funds within 13 months will incur a 9% interest rate.
Although many see the distribution of these funds as a major challenge, other smaller rural facilities see it as the difference between staying open and needing to close their doors. As some rural hospitals were already vulnerable and operating at a loss, the need for financial help is crucial.
Obviously, the system isn’t perfect. The disparity of funds given to larger health systems versus smaller ones that need it the most can seem controversial. The Providence Health System, for example, owns 51 hospitals and holds close to $12 billion in cash, according to The New York Times. They received more than $500 million in government funds. On the other hand, a rural hospital system in Kentucky, St. Claire Healthcare, only received $3 million from the federal government. According to the CEO Donald H. Lloyd II, this would be enough to cover two weeks of payroll.
The good news for rural hospitals is that many will be able to collect a no-interest-for-a-year loan equivalent to the last six months of Medicare funding that they received. For some, this equates to 125 percent of that amount in advance. However, as many of them are currently operating at a loss, the loans will help them stay afloat, but for how long? What will happen when they need to pay it back when they can barely afford supplies and staff as it is? None of them have the cash holdings of the larger systems.
Coronavirus Relief Bill or Anxiety Bill?
Of course, these relief funds were all rallied and sent at the beginning of the year, so why are we talking about this now? Unfortunately, there comes a time were a loan is due and the money no longer feels like a relief and more of a burden, especially for smaller health systems and rural hospitals.
Normally, hospital loans are payable 120 days after being received. In the case where funds are not reimbursed, Medicare stops reimbursing claims made by that hospital or health system until they are paid back in full. Typically, Medicare reimburses close to $60 billion in payments under Medicare’s Part A Program.
When it comes to the coronavirus emergency funds, the time for most of the funds distributed to hospitals across the country to start being paid back is just around the corner. Many hospital systems jumped on the federal loans at the start of the pandemic as they were the first available to help.
However, if they cannot pay them back, the fear of not receiving Medicare payments, which make up an average of 40% of hospital revenue, is debilitating. Many hope the reimbursements will be pushed back to 2021, if not miraculously forgiven altogether.
It is safe to say that hospitals and health systems across the United States are having difficulty navigating the many rules and regulations attached to these grants and loans. As most have operating margins that continue to fall, the initial excitement of incoming money is replaced with uncertainty. Of course, essential resources and personnel will receive most of the money, but anything beyond that will need to be scrutinized with a magnifying glass to ensure payments can be made back when the time comes, which is right around the corner.