Emergency Funding for Hospitals

Ciaran S. Phibbs, PhD is Associate Director of the Health Economics Resource Center at the Veterans Affairs Palo Alto Health Care System and Associate Professor of Pediatrics at the Stanford University School of Medicine.

The just passed CARES Act includes $100 billion to reimburse eligible health care providers for health care related expenses or lost revenues attributable to Covid-19, including Covid-19 treatment costs and those due to cancelled elective surgeries. The legislation also includes a 20% increase in Medicare reimbursement for treatment of Covid-19 cases and some other changes that will help the bottom line of hospitals.

This legislation has almost no details on how these funds will be distributed. In addition, there are serious concerns that the money allocated will be insufficient to address hospital shortfalls, which hospitals will get these funds, and how quickly they will be distributed. More importantly, since current policy is unlikely to fully reimburse hospitals for all of the added expenses and lost revenue associated with the Covid-19 epidemic, the looming large financial loses for most hospitals are a very strong financial incentive to not do everything possible to prepare to treat potential patients.

The cancelling of elective surgery is the driver of the problem. The reduction of elective surgery is an appropriate step in this crisis, both to create beds for actual and anticipated demand of Covid-19 cases, and to reduce exposure risks for non-urgent care. But, elective surgeries are the lifeblood of the bottom line for virtually every hospital in the country. The profits from elective surgeries cover the loses that hospitals incur for most other types of care.

This loss of revenue means that many hospitals are rapidly burning through their financial reserves. The rate that hospitals are losing money varies significantly across hospitals due to both the regional variation in the epidemic and inter-hospital variation in the rates at which elective surgery has been cancelled. Many hospitals are now making contingency plans about steps that may need to be taken so that they can continue to operate (e.g., layoffs), which is the last thing that we need hospitals to be concerned with right now.

Crafting a careful process to just reimburse for any losses and added costs associated with the Covid-19 epidemic would take a lot of time and effort. We don’t have time and that effort is better directed elsewhere in a crisis. There is a simple: just have the US Government issue a blanket assurance that they will directly maintain the finances of all US hospitals and set up a system to rapidly distribute funds that match hospitals’ financial margin from last year (or some similar formula).

This can be easily administered as essentially all hospitals already file Medicare cost reports to CMS. We should allow hospitals to be able to immediately ask for money, with short timelines for payment, with the stipulation that hospitals would have to pay back any surplus above the reimbursement formula. There would need to be a clause to prevent fraud and abuse, but this can be retrospective.

The advantage of a system like this is that it would get funds to hospitals quickly and it would provide a very strong signal to hospitals that they should do everything that they can to help the country deal with this crisis. Yes, this would result in eliminating losses for those hospitals that otherwise would have lost money this year, but many of those hospitals are in high-need areas, such as rural hospitals.

We are in a very serious crisis and hospitals are absolutely essential to dealing with it. We should be doing everything that they can to help them help us through it.

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