COVID-19 relief offset hospital losses: Study

The COVID-19 pandemic has cut hospitals’ operating margins, but federal aid has kept hospitals afloat, a new study found.

In fact, the study indicated coronavirus relief aid sustained profit margins, and actually boosted profits at financially vulnerable rural hospitals and smaller providers.

Researchers from Johns Hopkins University analyzed more than 2,100 hospitals and their financial numbers in 2020 for the study, which was published on Jama Health Forum May 13.

After the COVID-19 pandemic emerged in 2020, Congress provided $175 billion in federal aid to hospitals.

“Although hospitals experienced a sizable reduction in operating margins in 2020, their overall profit margins remained similar to those in prior years, suggesting that the COVID-19 relief fund effectively offset the financial losses for hospitals during the COVID-19 pandemic,” the authors wrote.

“Government, rural, and smaller hospitals, which were supported by some targeted fund allocations, generated higher overall profit margins during 2020 than in prior years.”

Among 1,378 hospitals that began their fiscal years in January, their mean operating margin declined from -1% in 2019 to -7.4% in 2020. However, the mean overall profit margin was 6.7% in 2020, a figure that was similar to prior years, according to the study.

“Hospital operations were really hit hard during the pandemic. Our study shows that the relief funds provided an important lifeline to keep financially weak hospitals up and running,” Ge Bai, one of the authors, said in a statement accompanying the report. Bai is a professor in the Johns Hopkins Bloomberg School’s Department of Health Policy and Management.

Government, rural and smaller hospitals showed higher overall profit margins in 2020 than in 2019.

• Government hospitals: overall mean profit margins reached 7.2% in 2020, up from 3.7% in 2019
• Rural hospitals: Mean profit margins rose to 7.5% in 2020, compared to 1.9% in 2019
• Smaller hospitals: Mean profit margins reached 6.7% in 2020, up from 3.5% in 2019

Some hospitals began their fiscal years in July, months after the arrival of the COVID-19 pandemic in 2020. They saw sharp declines in their operating margins in the 2019 and 2020 fiscal years (mean -9.5% in 2019 and -6.1% in 2020). But their overall profit margins held steady in 2019 (4.2%) and rose significantly in the 2020 fiscal year (11.1%).

However, the authors note that the COVID-19 pandemic disrupted operations and the financial losses from those disruptions isn’t fully known. The researchers acknowledge that it’s not clear if the federal aid offset those financial losses. Many health systems delayed elective surgeries and other non-urgent surgeries during the initial months of the pandemic.

Hospitals continue to see challenges with operating margins, healthcare leaders and analysts say.

Hospitals saw negative operating margins in the first three months of 2022, with January being especially difficult due to record COVID-19 hospitalizations. Health systems have been battling higher labor and supply costs, and earlier in the year, they saw a substantial drop in volume as many non-urgent procedures had to be postponed.

• Related story: Hospitals are paying 37% more in labor costs since COVID-19 pandemic began

Rural hospitals in particular face daunting financial troubles, and some are at risk of going under, some analysts warn. Diane Swonk, chief economist at Grant Thornton, said in March the industry is on the cusp of seeing some hospitals close their doors.

“We’re about to see a lot of hospitals close,” Swonk said. “That means a loss of access of care in areas that are underserved."

More than 500 rural hospitals are at an immediate risk of closure due to financial losses, according to a recent report from the Center for Healthcare Quality and Payment Reform. Another 300 rural hospitals are at high risk of closure because they have low financial reserves or they rely heavily on government aid or other sources of revenue beyond patient volume.