The coronavirus pandemic has inflicted such vast damage on the American economy that one damaged sector has gone relatively unnoticed. Despite incurring a massive influx of new patients, the hospital industry faces what one executive called a “seismic financial shock” from the virus.
The types of shocks hospitals currently face also illustrate the problems inherent in Democrats’ proposed expansions of government-run health care. Likewise, the pay and benefit cuts and furloughs that some hospitals have enacted in response to these financial shocks provide a potential preview of Democrats’ next government takeover of health care.
The health-care sector faces two unique, virus-related problems. The lockdowns in many states have forced physician offices to close, or scale back services to emergencies only. The cancellation of routine procedures (e.g., dental cleanings, check-ups, etc.) has caused physician income to plummet, just like restaurants and other shuttered businesses.
While many physician practices have seen a dramatic drop-off in patients, hospitals face an influx of cases—but the wrong kind of cases. According data from the Health Care Cost Institute, in 2018 a hospital surgical stay generated an average $43,810 in revenue, while the average non-surgical stay generated only $19,672.
The pandemic has raised hospitals’ costs, as they work to increase bed capacity and obtain additional personal protective equipment for their employees. But as one Dallas-based hospital system noted, coronavirus’ true “seismic financial shock” has come from the cancellations of elective surgeries that “are the cornerstone of our hospital system’s operating model.”
This rapid change in hospitals’ case mix—the type of patient facilities treat—has inflicted great damage. Replacing millions of higher-paying patients with lower-paying ones will rapidly unbalance a hospital’s books. Changing patient demographics, in the form of additional uninsured patients and patients from lower-paying government programs, only compounds hospitals’ financial difficulties.
A Preview of Democrats’ Health Care Future
The shock hospitals face from the rapid change in their case mix previews an expansion of government-run health care. The Medicare Payment Advisory Commission noted in a report released last month that in 2018, hospitals incurred a 9.3 percent loss on their Medicare inpatient admissions. To attempt to offset these losses as hospitals treat coronavirus patients, Section 3710 of the $2 trillion stimulus bill increased Medicare payments for COVID-related treatment by 20 percent.
With respect to the single-payer bill promoted by Sen. Bernie Sanders (I-VT), neither the conservative Mercatus Center nor the liberal Urban Institute assumed the higher reimbursement rates included in the stimulus bill. Mercatus’ $32.6 trillion cost estimate assumed no increase in current Medicare hospital or physician payments, while Urban’s $32 trillion cost estimate assumed a 15 percent increase in hospital payments and no increase in physician payments. Raising Medicare reimbursements to match the 20 percent increase included in the stimulus bill would substantially hike the cost of Sanders’ plan.
Conversely, presumptive Democratic nominee Joe Biden believes his “public option” proposal, by making enrollment in a government plan voluntary, represents much less radical change. But his plan increases the generosity of Obamacare subsidies and repeals current restrictions prohibiting workers with an offer of employer coverage from receiving those subsidies—both of which would siphon patients toward the government plan.
In 2009, the Lewin Group concluded that a government plan open to all workers would result in 119 million Americans dropping their private coverage. Such a massive influx of patients into a lower-paying government system would destabilize hospitals’ finances much the same way as coronavirus.
Economic Cutbacks and Job Losses
Sadly, the coronavirus pandemic has allowed us to see what a rapid influx of lower-paying patients will do to the hospital sector. A few weeks into the crisis, many systems have already resorted to major cost-cutting measures. Tenet Healthcare, which runs 65 hospitals, has postponed 401(k) matches for employees. In Boston, Beth Israel Deaconess has withheld some of emergency room physicians’ accrued pay, a measure sure to harm morale as first responders face long hours and difficult working conditions.
This economic damage from a rapid change in hospitals’ payer mix echoes a study in the Journal of the American Medical Association last spring. That study concluded that a single-payer health care system paying at Medicare rates would reduce hospital revenues by $151 billion annually, resulting in up to 1.5 million job losses for hospitals alone. Robust enrollment in the government-run health plan Biden supports would have only marginally lower effects.
Hospitals, like the rest of our economy, will in time recover from the financial impacts of the coronavirus pandemic. But they may not bounce back quickly, or at all, from another expansion of government-run health care—a fact that hospital workers facing cutbacks, and patients needing care, should take to heart in November.