Aug 25, 2022 - Health

Hospitals rebounding from pandemic press for more federal help

Illustration of stacks of one hundred dollar bills laid in a medical cross shape
Illustration: Annelise Capossela/Axios

Some of the biggest hospital chains are seeing business rebound to pre-pandemic levels, but the industry as a whole is pressing for more federal relief before year's end, citing inflation, labor and supply cost pressures.

Why it matters: Hospitals are the biggest driver of U.S. health care spending, and the pandemic has tested Washington's willingness to take on the powerful industry.

  • The biggest focus is a scheduled 4% Medicare payment cut due to take effect at the end of the year, unless Congress delays it.

Driving the news: Second quarter earnings reports show how well some of the industry's biggest names have weathered the COVID-19 crisis.

  • Tenet's adjusted second quarter earnings grew more than 15% over year-earlier levels, beating investor expectations.
  • HCA Healthcare's adjusted earnings were $3 billion, also ahead of Wall Street estimates.
  • Community Health Systems, on the other hand, reported a $326 million loss on lower-than-expected volumes and significant labor costs.

Some hospital groups returned unspent COVID relief funds to the federal government because they no longer needed the money, an Urban Institute report found.

  • "These CARES dollars really had a positive impact on hospital profits over time," Fredric Blavin, a research associate at the Urban Institute, told Axios. "It did help across the board providers of all types: financially vulnerable hospitals and those not as financially vulnerable."

Yes, but: Hospitals say people who deferred care for non-COVID reasons during the pandemic are now showing up sicker and in need longer stays and more intense treatment.

  • Patient volumes are back up to pre-pandemic levels in many hospitals, especially emergency departments, a July Kaufman Hall flash report shows.
  • Volatility in financial markets is also driving some hospital operators' investments underwater.
  • "The biggest drivers of earning differences and revenue differences tend to be from investment losses," Christopher Whaley, an economist at Rand, told Axios.
  • Along with higher labor and supply costs, facilities also are grappling with more spending on high-cost specialty drugs: A recent American Hospital Association report noted Humira, used to treat patients with rheumatoid arthritis, had a 21% price increase between 2019 and 2021.

The industry is pressing Congress to delay the year-end Medicare payment cut, which would come on top of a scheduled 2% cut in Medicare payments that hospital interests failed to stave off earlier this year.

  • The industry also wants Congress to extend or make permanent programs that support rural facilities and are slated to expire on Sept. 30.
  • And facilities in the government's discount drug program want to be made whole after the U.S. Supreme Court unanimously overturned a huge pay cut stemming from a 2018 rule.

Zoom in: Hospital groups fear that the impacts of inflation, a changing health care landscape and the staffing crisis could lead to financial uncertainty in the coming months.

  • Paying staff competitive wages remains a necessary and expensive line item on each hospital's budget, because competition continues to siphon talented workers away, especially in saturated markets.
  • "We still face headwinds in terms of the costs side; on the workforce side that hasn't gone away," Chip Kahn, CEO of the Federation of American Hospitals, said. "There's been moderation in costs of traveling nurses, although I might add that that moderation is probably 30 to 40% above what they cost traditionally."
  • The one service area still below pre-pandemic levels are elective surgeries and operations, Erik Swanson, senior vice president at Kaufman Hall, told Axios.
  • The answer for some companies may be shifting care to ambulatory surgery centers that already account for more than half of outpatient procedures. Tenet did a $1.1 billion deal last year to get a stake in 86 of the centers.
  • "It's a challenging business problem because if you're a hospital, you spent many years and billions of dollars to build infrastructure for patients, but if all of a sudden patients due to risk of COVID or improvements in technology want to go outside the hospital, you're stuck with fixed costs," Whaley said.

Hospitals got some relief when Congress passed the Inflation Reduction Act, extending Affordable Care Act subsidies for another three years, which will help hospitals in states that have not expanded Medicaid in particular.

The bottom line: If more patients seek care outside of hospitals, this may be a more pressing concern for facilities' bottom lines than investments subject to market volatility.

  • "(Market) volatility means that in the future investment income could come back, but competition-induced volume won't come back easily unless hospitals voluntarily enter a price war which would hurt their revenue," Ge Bai, an accounting and health policy professor at Johns Hopkins University, told Axios.
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