AHA ISSUES ANALYSIS SHOWING THAT THE EFFECTS OF COVID-19 COULD REDUCE HOSPITAL MARGINS TO UNSUSTAINABLE LEVELS

The American Hospital Association has released an analysis performed by KaufmanHall showing the effects of COVID-19 on hospitals’ margins in 2020.  Hospitals have been particularly hard hit by the coronavirus because of the reduction in patient volumes and revenues due to the cessation of non-emergency procedures at the beginning of the pandemic, which shut-down has been reinstated in some areas where the virus is surging.

The analysis concluded that the ongoing impact of COVID-19 “would undermine the ability of hospitals to serve their communities while COVID-19 continues and in the post-COVID-19 environment.”

In performing its analysis, KaufmanHall considered different scenarios regarding the course of the virus and patient demand for hospital services from a more optimistic scenario in where there would be a slow but steady decrease in COVID-19 cases to a less optimistic scenario in which there would be incremental surges in COVID-19 cases.  The analysts gave the more optimistic scenarios a 40% weight and the less optimistic scenarios 60% weight.  Under the most optimistic scenario, KaufmanHall predicted that margins could be -1% by the fourth quarter of 2020.  In the least optimistic scenario, margins could drop to -11%

KaufmanHall noted that even before the coronavirus crisis, hospitals generally operated on a thin margin of 3.5%.  KaufmanHall also pointed out that funding available to hospitals through the CARES Act has mitigated the impact of the coronavirus to some degree.  Even so, KaufmanHall’s analysis concluded that “without further government support, margins could sink to -7% in the second half of 2020,” which is “an unsustainable level for American hospitals.”

The Kaufman Hall analysis is linked here.  For Whatley Kallas, LLP’s earlier articles on the AHA’s reports finding that hospitals are expected to suffer potentially catastrophic losses due to COVID-19, please click here and here.