Florida hospitals face a cash crunch from COVID
by Amy Keller
Updated 2 yearss ago
During the first week of March in 2020, Sarasota Memorial Hospital was treating a record number of patients, and hospital leaders were trying to figure out where to park the dozens of excess cars. The patient traffic wasn’t COVID-related — it was “just normal hospital visits or health care visits,” recalls David Verinder, president and CEO of Sarasota Memorial Health Care System — but by month’s end, as the COVID-19 pandemic began to sweep through the nation, the campus looked more like a ghost town. “Volumes dropped through the floor,” he says.
Some of the drop-off stemmed from a March 20 order by Gov. Ron DeSantis temporarily banning “non-essential” elective procedures, but it wasn’t just canceled surgeries keeping people away. Fearing they might be exposed to the virus in health care settings, patients were avoiding other types of medical care. Urgent care visits plummeted 70% and Sarasota Memorial’s emergency department traffic plunged 30% to 40%.
“We had never seen this before or really anticipated it could happen,” Verinder says. “We were worried about how we would deal with this influx of (COVID-related) volume, and suddenly we had the exact opposite that happened in a very short amount of time.”
Over the next 60 days, Sarasota Memorial Hospital’s net revenue dropped by almost $50 million and its affiliated physicians’ group took a $5.7-million hit. At the same time, expenses were exploding as the hospital stocked up on protective gear, ventilators and other items it needed to tackle the coming surge of COVID-19 patients. Supply chain shortages added to the financial strain. Before the pandemic hit, the hospital was paying about 51 cents apiece for N-95 masks, which provide the best protection from COVID-19 particles. At the end of March, the coveted masks were selling for $3 to $4. By December, Sarasota Memorial had racked up $17 million in COVID-related expenses, including supplies, equipment and surge staffing.
The hospital also lost money treating COVID patients because of their longer stays and complex care. “When a patient is put into the hospital, you get paid a lump sum, and it doesn’t matter how much cost goes into that patient’s care,” Verinder says. “So if you take a patient that used to stay here two or three days and all of a sudden now they’re staying here 10 days, it’s the same reimbursement, or maybe just a little bit more, but it nowhere near covers the cost of that additional care.”
Strata, a Chicago-based health care analytics firm, estimates that even with a 20% boost in Medicare payments provided under the Cares Act, hospitals lost $1,200 on average for every COVID-19 patient they treated. Some hospitals lost up to $6,000 to $8,000 per case, depending on their payer mix.
Sarasota Memorial wasn’t the only hospital facing financial challenges. The Safety Net Hospital Alliance of Florida estimates that critical care hospitals in the state lost $1.5 billion during the elective procedure shutdown last spring — a loss of approximately $40,000 per hospital bed, even after federal Cares Act funding. An analysis by the Florida Hospital Association, based on a survey of 106 hospitals across the state, found that Florida hospitals collectively lost $4 billion through December of last year from the decline in revenue and increased spending on staffing, equipment and supplies.
Most have weathered the storm with a combination of infusions of relief from the federal government and by implementing various cost-cutting measures. Mary Mayhew, president and chief executive of the Florida Hospital Association, says federal relief plugged about $1.5 billion of that $4 billion financial hole. To offset the other $2.5 billion, a number of hospitals around the state, including Sarasota Memorial, Jupiter Medical Center, DeSoto Memorial Hospital, JFK Medical Center in Palm Beach County and Jacksonville’s Mayo Clinic furloughed workers or reduced hours in the early days of the pandemic.
Memorial Healthcare System, which consists of six South Broward hospitals, including Memorial Regional Hospital, instituted a hiring freeze, deferred 2020 bonuses, halted capital projects inside the hospital, reduced its marketing expenses and cut down on other discretionary spending. The hospital system also secured a $125-million line of credit from its bank, which it hasn’t had to draw on. “We didn’t know whether our payers were going to pay us. We didn’t know if money was going to keep coming in, so we wanted to make sure we took care of that and we were able to provide care,” says David Smith, a senior vice president and CFO for Memorial Healthcare System.
A year later, hospitals continue to face headwinds. While some hospital chains ended the year on a high note — Tenet Healthcare, which operates 10 hospitals in South Florida, posted a $414-million profit in the fourth quarter, and HCA, which operates 50 hospitals across the state, recorded an annual profit of $3.8 billion — the slow pace of the vaccine rollout and new variants could slow a broader recovery in the sector. Non-profit hospitals face a particularly rocky road, according to Moody’s Investor Service, and could see a dip in revenue if unemployment levels climb and more individuals lose employer-sponsored health insurance and become uninsured or shift to the Medicaid rolls. The continued shift of Baby Boomers onto Medicare rolls, which pay considerably less than commercial insurers, could also dampen revenue, according to Moody’s.
Labor costs remain a concern, particularly if COVID-19 surges continue. During COVID peaks, Memorial Healthcare System was paying up to $7 million a month for between 100 and 300 extra nurses and respiratory therapists it needed. Smith worries about the continued toll on staff. “Our caregivers are just burned out, and they’re tired, the nurses, physicians, the respiratory therapists, the environmental workers — not only working extra shifts, but also seeing a lot of bad outcomes they’re not used to seeing,” Smith says.
The big test for 2021 will be whether non-COVID hospital admissions return to pre-pandemic levels. “I think the public is now getting used to the idea that we have to live with COVID and we have to look after other medical conditions,” says Dr. Aharon Sareli, chief of critical care medicine at Memorial Healthcare System in Broward County and chief physician executive of the Memorial Physician Group. “We as a health care system have become much smarter about how we efficiently run dual operations and care for non- COVID patients safely and effectively, while separating them out from the COVID population.”
Sarasota Memorial’s Verinder sees a light at the end of the tunnel. While emergency department visits are still down 18% and urgent care is down about 30%, non-emergency/elective cases have mostly rebounded to pre-pandemic levels — and he believes the dip in ER and urgent care visits is less a function of consumer fear than lifestyle changes. “People aren’t out doing things. They aren’t on their bicycles as much; they’re not out traveling,” he says. “I think that will just turn in time. When people are needing to get a knee done, or something else, they’re coming in now.”
Ultimately, many believe that hospitals will need more pandemic-relief from the government to get back on solid footing. “When you start talking billions of dollars, sometimes it’s hard for people to get their head and arms around the magnitude of the financial impact of the pandemic,” says FHA’s Mayhew.
“These losses can’t just be absorbed. As hospitals forecast this coming year and their current financial situation, if there isn’t relief on the horizon, federally or at the state level, ultimately it may result in further cuts within the hospital budget in order to make ends meet,” Mayhew says.
COVID-19: The Cost of Care
More than 79,000 Floridians have been hospitalized with COVID-19 at an average estimated cost of $30,000 per hospital stay for those with insurance coverage, according to analysis of health care claims data by FAIR Health, an independent, non-profit group. For patients requiring intensive care, the tab can quadruple. The non-profit Commonwealth Fund estimates that Florida incurred total in-patient costs of $2.1 billion through October 2020.
Kicking into Overdrive
Like many large hospital systems, Memorial Healthcare System in Broward County spent the early weeks of 2020 retooling and retrofitting its facilities to mobilize for a highly contagious pandemic. Anticipating a crush of COVID patients — which would come in July — MHS set up air-conditioned triage tents outside of its emergency departments so they could separate COVID-19 patients from non-COVID patients. Managers also expanded the system’s critical care capacity, effectively creating pop-up ICUs in areas that hadn’t functioned as ICUs before.
Each needed its own monitoring equipment, ventilators and negative pressure (or isolation) rooms. Each area also needed its own dedicated staff of physicians, respiratory therapists, nurses and aides. To bolster ICU staff, non-ICU advanced practice providers and resident physicians were assigned to help out, with experienced critical care physicians overseeing. Anesthesia teams came in to handle some of the intubations.
“We really had to come up with a lot of changes physically and staffingwise to handle this,” says Dr. Aharon Sareli, Memorial Healthcare’s chief of critical care medicine, and one of the leaders of the hospital’s pandemic steering committee.
When PPE inventory was running short, the hospital shifted staff with sewing skills into a makeshift mask-making factory. They produced 20,000 masks from surgical material that’s normally used to wrap sterile instruments. When they ran out of plastic face shields, the hospital contacted a local machine shop, which modified its plant to produce the protective shields.
Oxygen was another big concern. The life-sustaining gas is a mainstay of COVID-19 therapy, but most hospital systems aren’t equipped to deliver high concentrations to so many patients at once. The piping and coils that convert the frigid liquid to gas and carry it to patient rooms can literally freeze up and stop working if overtaxed. “It required a lot of modifications — additional oxygen trucks and ways to prevent pipes from freezing. It was a herculean effort by our engineering and facilities team to make sure all of that happened,” Sareli says.
Through December, Memorial Healthcare spent $78 million on pandemic-related expenses. The hospital lost $175 million in revenue during the same period because of shutdowns and lower patient volumes. “It’s some big numbers we’ve had to swallow, and a lot of the cost mitigation stuff we’ve done helped to offset some of that stuff, but the numbers were fairly large and continue to be so,” says CFO David Smith.
By ramping up telemedicine visits, Memorial Healthcare System’s physician group was able to see virtually the same number of patients in 2020 that it did in 2019, but reimbursements for telehealth visits have lagged in-office visits about 10% to 15%. Moody’s Investor Services predicts a continued shift toward “lower-cost settings” such as telemedicine will contribute to a 10% to 15% drop in average operating cash flow for non-profit hospitals in 2021.
Rural Hospital Closures
At least five rural hospitals in the state have closed or reduced in-patient services over the past three years.
Among the most recent closures was Shands Lake Shore Regional Medical Center. The 99-bed hospital — located about halfway between Tallahassee and Jacksonville in Lake City — shut down last August following years of declining revenue. It was operated by Tennessee-based Community Health Systems (CHS), which runs 12 hospitals in Florida. Shands Lake Shore is one of 47 hospitals nationwide that closed or filed for bankruptcy through October 2020, according to Becker’s Hospital Review. In June, CHS sold two other rural Florida hospitals — the 49-bed Starke Regional Medical Center and the 25-bed Shands Live Oak Regional Medical Center — to HCA Healthcare, which converted both into stand-alone emergency departments.
In a strange twist, the U.S. Justice Department last June charged 10 individuals, including Miami entrepreneur Jorge Perez (no relation to the Miami real estate mogul), with concocting a $1.4-billion billing scheme that used rural hospitals as shells to submit fraudulent claims. The hospitals included Cambellton-Graceville Hospital, a 25-bed facility in the Panhandle that closed in 2017, and Regional General Hospital of Williston, a 40-bed hospital north in Levy County that shut down in 2019.
According to the indictment, the conspirators took over small, financially troubled rural hospitals and used them to bill private insurance companies for millions of dollars of expensive urinalysis drug tests and blood tests conducted at outside labs with which they are affiliated or controlled. While the tests were performed at those labs, the bills they sent private insurers made it appear that they were done at the hospitals, allowing Perez and his associates to collect higher reimbursements at the contractual rates the hospitals had negotiated with insurance companies, according to the allegations.
A surprise federal inspection of Regional General Hospital of Williston in March 2019 found a hospital in name only, with no patients and few staff. Signs on the emergency room door said “EMERGENCY SERVICES TEMPORARILY CLOSED WILL REOPEN SOON,” according to the inspection report, and all 40 beds in the hospital were empty. A housekeeper told the inspector there were no patients and there had been no nurses at the hospital for at least two days. “There are no nurses at night because we have no patients,” she told the inspector. Census reports showed that the hospital had 43 patients during the previous 12 months. The hospital closed three months later under a heap of debt and tax liens.
Read more in Florida Trend's April issue.
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