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Why is the Healthcare Industry Suffering Financially During a Pandemic?

Posted May 12, 2020 by Bill Walker

Last week, I shared with you some of the industries that have been hardest-hit by the COVID-19 crisis, including restaurants, childcare centers, and construction. The negative impacts to these industries seem fairly logical given the temporary regulations and shutdowns put in place to help prevent the spread of the virus. But amid the pandemic, there is one industry in particular that you may be surprised to learn is struggling financially: healthcare.

Yes, you see stories on the news of hospitals practically overflowing with COVID-19 patients, but those images don’t tell the whole story. Hospitals, physicians’ offices, imaging centers, and other healthcare providers are seeing an increase in patient volume and related revenue for coronavirus testing and treatment, but they are experiencing a loss of revenue related to cancelled wellness appointments and postponed elective procedures, which are more profitable. In fact, according to Friday’s jobs report, the healthcare sector lost 1.4 million jobs in April.

A drop in primary care

According to results of a Medical Group Management Association Survey, from the start of the COVID-19 crisis through early April, medical group practices in the U.S. saw their revenue drop an average of 55 percent. A survey conducted in April by the Larry A. Green Center and Primary Care Collaborative found that nearly 90 percent of primary care physicians say they are seeing a large decrease in their number of daily patient visits.

And this dramatic dip is understandable from the patient’s perspective. People are clearly concerned about going for non-emergency healthcare for fear of crossing paths with COVID-19 patients. And with good reason. The World Health Organization (WHO) estimates that a person with the coronavirus will infect 2.2 to 2.5 other people, on average, making it twice as contagious as seasonal influenza.

The Centers for Disease Control and Prevention (CDC) has created guidelines to help make visits to the doctor safer, including separating patients with respiratory symptoms or offering “well visits” in the morning and “sick visits” in the afternoon. But for many patients, especially those with pre-existing conditions, such measures are still not enough to alleviate their concerns.

Independent practices suffering

The issues created by the pandemic add to the existing challenges for independent physician practices, which had already been dwindling in numbers in recent years. The American Academy of Family Physicians says that currently, only around a quarter of their members are independent owners of their practices, as compared to 37 percent in 2011. Such independent practices are especially vulnerable to the COD-19-related decline in appointments and the resulting impact on revenue.

While they market themselves as providing a higher level of personalized care, such independently owned practices have faced increasing competition from large healthcare systems’ medical groups, which benefit from centralized resources. This competition with medical conglomerates also has exacerbated the availability of some supplies for independent practices, including access to personal protective equipment (PPE), hand sanitizer, and disinfecting wipes.

Retooling to adapt

Labor costs typically comprise the largest share of expenses for a medical practice; this includes wages, benefits, and related payroll taxes. To deal with these sudden and dramatic drops in revenue, some practices have had to adjust management of their business such as reducing employees’ hours, furloughing them, or laying people off.

In fact, employment in medical offices dropped by 12,000 from February through March 2020. Around 40 percent of primary care practices have been forced to do layoffs or furloughs, according to the Larry A. Green Center and Primary Care Collaborative.

Some practices are temporarily redeploying their practitioners in order to generate revenue. This can mean moving them to care for COVID-19 primary care patients or to triage patients in a COVID-19 “hot spot.”

Still others are switching to a telemedicine model, in which patient appointments are conducted via video conference. The downside of telemedicine? The insurance reimbursement rates for “virtual” visits are often lower than for in-person appointments. Some insurers even waive copays and deductibles altogether for such visits.

Hospitals also struggling

Again, despite the overflowing ER and ICU beds, hospitals are experiencing their own pandemic-related financial troubles. Some states have mandated the cancellation of non-emergency surgeries and other procedures. In other cases, patients have decided on their own to cancel elective procedures for fear of contracting the virus while at the hospital.

A May 1 report by consulting firm Crowe LLP, quantified the dire situation, finding that outpatient surgical volumes have declined 71 percent in the nation’s hospitals and surgery centers. Other outpatient services fell 62 percent, emergency department visits are down 40 percent, and hospital inpatient populations are down 30 percent.

As a result, hospitals also have seen their insurance reimbursements plummet. For example, Northwest Community Hospital in Arlington Heights, Illinois, said in early May that their revenue was down 50 percent over the past two months. The hospital is imposing pay cuts starting at 6 percent for employees and rising to 14 percent for executive vice presidents and 20 percent for the CEO. The cuts are slated to last through September.

The CARES Act allows hospitals to receive an advance on expected Medicare reimbursements and provides $100 billion to reimburse eligible healthcare providers for expenses or lost revenue directly related to COVID-19. But despite this cash infusion, Moody’s maintains its downward revision of non-profit hospitals’ 2020 outlook from stable to negative.

Post-COVID-19 outlook

It may be difficult to imagine right now, but the COVID-19 pandemic will eventually subside. Once that happens, healthcare providers are expected to see a spike in patient visits and demand for elective procedures. In that post-COVID-19 world, scheduling will be a challenge, and patients likely will have extended wait times to see practitioners.

In addition, data from CVS, which owns insurance company Aetna, suggests that we can expect to see an increase in health issues unrelated to COVID-19 in the coming months and years as a result of postponed care. As noted in the Wall Street Journal this week, CVS reported that in April, they saw a drop in new prescriptions since patients are seeing their doctors less frequently — a concern especially for those with chronic conditions. Aetna saw a decrease in use of healthcare services of around 30 percent.

>> The information in this post is found on the Vertical IQ COVID-19 webpage. On this free portion of our site, you’ll find information about the healthcare sector as a whole, as well as information specific to industries like ambulatory surgery centers, ambulance services, blood and organ banks, home healthcare services, mental health and substance abuse centers, and more.

 

Tags: financials, industry information, industry intelligence, coronavirus, COVID-19, healthcare

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