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Considerations of Financial Impact of COVID-19 to Hospitals and Healthcare Systems

This blog was written and produced by Scott Rau and Jason Allen of M.S. Hall Associates, LLC. Looking to get in touch with MS Consultants? Reach out today: mshallandassociates.com.

The global COVID-19 pandemic has impacted hospitals’ and health systems’ ability to continue normal business operations and is significantly affecting their financial viability. Hospitals have followed the directions of Federal CMS and the New York State Governor and have delayed elective procedures, which are often commercially insured, resulting in a considerable reduction in their revenues and margin.

The CARES Act, signed into law on March 27, 2020, provides financing to hospitals and health systems for the sacrifice they are making in the public good and the increased expenses for treatment of COVID-19. Most notably, $100 billion in relief funds were made available to support healthcare-related expenses or lost revenue attributable to COVID-19, and to ensure the uninsured can get testing and related treatment.

As hospitals and health systems develop a strategy during these uncertain times, it is important to remember the decisions made now will not only impact current operations and financial position but, also shape the future.

The impacts of the change in cost structure, utilization, and payor mix attributable to COVID-19 will have an impact on cost reporting and reimbursement. Medicare DSH, Medicaid DSH, Medicare Bad Debts, IME/GME Reimbursement, Medicaid Capital and Uncompensated Care Payments, and cost-based reporting for Critical Access Hospitals to name a few. We have been responding to a multitude of questions related to the various programs in the CARES Act as well as the impacts on operations and liquidity. Bonadio and M.S. Hall, have collectively developed a list of considerations related to CARES and similar Federal stimulus programs, and the operational impact of the pandemic.

Potential Funding and Loan Programs Under the CARES Act:

  1. Medicare Accelerated and Advanced Payment Program.
  2. $100 billion for the Public Health and Social Services Emergency Fund.
  3. Paycheck Protection Program, Emergency Injury Disaster Loan Program & Main Street Lending Program.
  4. Sick and Family Medical Leave Credits.
  5. Employee Retention Credits.
  6. Payroll Tax Deferral.
  7. Deferral of Pension Credits.

Potential Impacts on Cost Structure:

  1. Remote/stand-up clinics or testing sites, non-congregate sheltering for staff, and opportunities for FEMA assistance.
  2. Temporary department closures, layoffs, and shared/shifting of departmental costs.
  3. Increase in telehealth services.
  4. Increased costs related to bed capacity, labor, medical equipment, and PPE.
  5. A shift in payor mix and potential for increased bad debts impacting cash flows and cost reporting.

Due to the unpredictable nature of the pandemic on our healthcare system, economy, and governmental regulation, these lists are subject to change and update.

Hospitals and health systems will need to consider their eligibility to participate in one or more programs under the CARES Act, their liquidity, and future reimbursement.

In addition, to gain a better understanding of the repercussions, hospitals and health systems should consider preparing interim cost reports, rate impact analyses, and cash flow forecasting using various scenarios and sensitivities. These will assist you in understanding the potential outcomes and mitigating risk to your financial position.

If you have questions or need additional assistance, please feel free to reach out to us, Amiee Jozic and Jonathan Miller. Click below for more contact information.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We therefore make no warranties, expressed or implied, on the services provided hereunder.