The second quarter of 2020 was supposed to be devastating for hospital providers as the COVID-19 pandemic forced many to stop business as usual in order to brace for a surge of patients and preserve precious resources.
Yet, all of the nation's largest for-profit hospital chains saw higher profits, and some more than tripled their net income compared to last year. In large part, federal relief funds propped up hospitals as volumes plunged, which raises questions about whether the bailout funds were supposed to pad profits.
To be sure, in a rush to get the funds out, they tended to go to wealthier systems instead of those in a more fragile state and in need of financial resources, while others contend it was supposed to help systems stave off liquidity issues that would have forced them to close, reduce staff or services.
To keep hospitals and the economy afloat, Congress passed massive rescue packages in recent months, including the Coronavirus Aid, Relief, and Economic Security Act, which earmarked $175 billion for hospitals and healthcare providers.
"A lot of money (never enough for hospital industry lobbyists, to be sure) was flushed out the Treasury door in a hurry with loose, expedient distribution rules earlier this spring. But the loss of profitable elective surgery revenue and unexpected COVID gear up to capacity costs were real, too," Thomas Miller, resident fellow at the American Enterprise Institute, said.
The hospitals argue the funds were absolutely necessary and the hospital lobby continues to urge Congress to deploy a new rescue package.
'Instrumental' in averting a fiscal crisis
Last week, the nation's four largest for-profit hospitals chains wrapped up reporting their second quarter results, with Tenet Health recording $88 million in net income, more than tripling from a year earlier.
The Dallas-based chain said its bottom line benefited from $523 million in federal relief funds and cost-cutting initiatives that resulted in lower expenses. Still, Tenet did report revenue fell 20% compared with the prior-year period as volumes fell.
Tenet was particularly exposed to the effects of the novel coronavirus with its outpatient branch that includes United Surgical Partners International, operating 264 ambulatory surgical centers as well as imaging centers and surgical hospitals.
"The CARES Act was instrumental ensuring we did not have a financial crisis while we were fighting the pandemic crisis," Tenet CEO Ron Rittenmeyer said during last week's earnings call with investors.
A similar story emerged among Tenet's competitors — volume plunged but profits did not.
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Despite revenue and volume declines, Nashville-based HCA's net income surged 40% to $1.1 billion during the second quarter, buoyed by $590 million in federal relief funds.
Community Health Systems posted a net income of $70 million, up from a net loss last year, after recognizing $564 million in relief money in the second quarter. And Universal Health Services was aided by $162 million in rescue funds, and reported net income of $252 million, up slightly from the prior-year quarter.
Speed over need
To get the money out the door quickly, HHS funneled the first tranche of the CARES money to providers and hospitals based on their Medicare fee-for-service revenue. The policy has been criticized for putting hospitals and providers with larger shares of Medicaid patients at a disadvantage.
"It wasn't done very well, as most of the CARES Act money went to organizations that didn't need the money," Robert Berenson, a fellow at the Urban Institute, said.
Berenson, a former vice chair of the Medicare Payment Advisory Commission, lambasted the distribution as bad public policy, blaming HHS for doling out relief funds quickly instead of setting up systems to assess need.
But Brian Tanquilut, an analyst at Jefferies, said the funds have been critical. "I think the relief money was meant to keep the doors on these hospitals open. If not for the grants and advanced payments, a lot of hospitals would have faced a liquidity crunch and would have had to close doors or reduce staffing levels and bed access significantly."
Still, critics shouldn't focus on just one quarter alone. It's important to take a longer view of the issue, particularly as the U.S. has yet to stamp out the novel coronavirus, Rick Gundling, senior vice president with Healthcare Financial Management Association, said.
"That is the nature of a pandemic, it hits the country at different times," Gundling said. "The provider relief funds will be much needed for those surges," particularly as providers like Tenet with a footprint in California, Arizona and Texas weather continued surges.
Looking at the for-profit hospital operators only captures a portion of the overall hospital market, Miller said, pointing to the need to look at nonprofits, as well. In fact, nonprofit behemoth Kaiser Permanente, an integrated health system that operates both hospitals and an insurance unit, reported that its net income for the quarter more than doubled to $4.5 billion — more than all the for-profit operators combined.
Patient volume did fall dramatically in the second quarter, as it captured the full effects of the virus.
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For many hospital operators, April was the low point in terms of patient volumes, as mid- to late-March is when operators began to feel the effects of the virus' strain and when local and state governments restricted elective procedures.
However, providers say volumes are bouncing back and for some its close to near-normal.
In fact, Tenet noted that hospital surgeries were just shy of near normal levels (90%) in the month of June. By comparison, hospital surgeries were down 45% in the month of April and surgeries at its outpatient unit were nearly wiped out.
Despite heavier COVID-19 caseloads in some locations, providers said they are adapting and still performing elective surgeries as local governments allow.