How Will COVID-19 Affect the Business of U.S. Hospitals?
Across the U.S., at least 3,927 people have tested positive for COVID-19 and at least 68 have died (as of March 13, 2020). What will this pandemic mean for hospitals across the country and their profitability as the number of cases increase? To get a grasp on the situation, Amy Francois of GLG’s credit strategies practice spoke on March 13 with Michael Clark, former CEO of the Spotsylvania Regional Medical Center, an HCA Healthcare hospital. The Q&A below has been edited for length and clarity.
What are the basic needs that hospitals must have onsite to be able to care for COVID-19 patients?
COVID-19 is a coronavirus that has a respiratory impact, so it requires patients to go in airborne infection isolation rooms, a.k.a. negative pressure rooms. Those are standard throughout hospitals in limited numbers. Probably 80% of intensive care units would be negative pressure rooms. Negative pressure rooms are specialized in that they don’t rely on the common HVAC system of the hospital. There is the potential to take single-patient rooms and convert them into these negative pressure rooms by adding a HEPA isolation unit that exhausts through the window. They’re expensive, about $5,000 per unit, and could be in short supply if we have a major influx of patients.
Can you walk us through the costs for caring for a medical-surgery (med-surg) COVID-19 patient?
A subsection of the variable cost is where hospitals will see the difference in caring for a routine patient vs. one with COVID-19. Obviously, with the negative pressure room required, I estimate possibly six hours a day of nursing for a standard med-surg isolated patient, also some respiratory care a couple hours a day. That would, on average, be around a $100 increase. Labs for staff and testing are estimated to be somewhere around a $300 to $400 increase for these patients.
The bulk will be isolation supplies for gowning, gloving, and respirators to work with these patients. Each time that staff has contact with that patient, they’ll need an impervious gown, gloves, and N95 respiratory mask. That’s about $50 each time staff puts those on to treat the patient, and that happens maybe 15 times a day. Obviously, centers will limit visitors. Standard patient supplies and meals will be kept to a minimum. An average med-surg isolation room will cost an additional $1,700 for this type of patient.
How about costs for caring for someone in intensive care?
Much of those costs would travel over, but there will be a higher premium on this level of care. Nursing care will increase to approximately eight hours per day, at $100 per hour. Respiratory care, because these patients most likely will be compromised and require ventilator assistance, will be about 10 hours per day, at about $1,000. The lab, incurring additional costs, will probably be around $1,200 for the additional testing, trying to clear these patients to determine at what stage they are and the infection rate. Other supply costs – again, those same gowns, gloves, and N95 respirators – would be used, but probably more like 25 times a day, because additional physicians, intensivists, nursing care, and respiratory care will enter those rooms. So cost jumps quite a bit, to about $4,400 per patient per day in intensive care. Discharging these patients requires three negative tests to show they’re no longer infectious, so COVID-19 cases could require two to three weeks of hospitalization.
Of all the costs you’ve outlined, what do you see as the largest variable based on the type of patient you’re seeing?
Besides respirators being in shorter supply, hospitals will eventually have to rely on agency and contract staffing, and that’s a huge increase in cost. In most cases, large healthcare systems have preferred provider agreements in place so they can call a staffing company and bring on staff.
With a general influx of patients, the first thing they’ll see is a much higher use of overtime hours to curtail vacation and leave. They’ll try to convert part-time staff into full-time staff. There’ll be contractors for periods of time, agency staffing for per-shift time, and per-diem staffing per shift time, all at a high cost. There typically are six-week, three-month, six-month, and one-year contracts, as well as per-hour shifts. If you estimate $100 per hour for nursing care, it would be three times that going through an agency; it’d be the same for respiratory therapists. The need in the emergency department will increase somewhat in the level of nursing staff, but also there’s the potential need for additional physician and mid-level staffing to cover the influx of patients. We can look back to previous flu cases and see that those levels increased quite a bit.
Will elective procedures decline if there’s a need to ramp up bed capacity?
If movement within regions is restricted, schools are closed, and large gatherings are banned, patients will not go for truly elective surgical admissions – potentially 80% of those procedures could be delayed by months. That will have a huge impact on the earnings potentials for any hospital system because that’s where larger margins come from. So if you’re replacing ambulatory care surgical patients by caring for a flu patient, your margins are going to suffer 30% to 50%. That’s thousands of dollars that would be lost by not doing ambulatory surgery. This decline won’t have any effect on hospital capacity, however; the limiting factor will be isolation rooms as much as anything. So first you’d have to have the room availability, and then you could pull that staff if there was a lower need in, say, ambulatory surgery.
Outside the physical requirements you have already touched on, what sort of new processes or procedures will need to be put in place to manage escalating demand?
The Centers for Disease Control and Prevention (CDC) has already pushed out the top 10 things that hospitals should do in the wake of COVID-19, and they fall back to what we experienced with H1N1, as far as how to treat potentially infected patients coming into the hospital: offering a mask and hand sanitizer, trying to isolate them in waiting rooms at least 10 feet from other patients, and wiping down areas as soon as the patient leaves. That is more or less the way business is done in any of these situations. Beyond that, the strain will come from not having enough isolation rooms and having these patients transferred into larger medical centers that may have rooms available. Beyond that, there’s the temporary means of taking single patient rooms and retrofitting them. In worst-case scenarios, the CDC has mass casualty-type temporary hospitals it could set up that would deal with these infection-type outbreaks.
What’s your experience with government subsidies in potential emergency situations like this? Do you think the government might cover some of these costs?
Yes. Think of massive hurricanes that have impacted Florida and Louisiana hospitals where the government came and tried to cover the increased costs for caring for patients. Obviously, if hospitals lost capacity, hopefully they had the insurance coverage to make up for that cost as well. The process usually takes six to nine months before the monies come, and they’re usually in addition to standard payments.
If we see COVID-19 accelerating in the U.S., what’s your prediction for hospitals’ profitability?
As far as COVID-19, a flu-type illness, it would be similar in cost to standard influenza, plus the heightened need for infection control, isolation, and respiratory treatment, in particular. There’s probably a 20% additional supply and staff cost. Profit margins could take a 30% to 50% hit if ambulatory patients in the surgical realm are lost. Hospitals rely on and make money to provide for their systems from surgical, particularly ambulatory surgical systems.
Not knowing the extent of the outbreak, we’ve in general done a good job in trying to isolate, prevent, and be ready for the strain on the system. But if it’s a huge outbreak, something that we haven’t experienced, all the aspects of healthcare could be hit at various times in a negative way simply because we’ve exhausted our resources. However, I believe a year from now, the system will be back to routine; you should see hospitals having profitable periods again.
About Michael Clark
Michael Clark is a healthcare management executive with over 35 years of experience, with skills in health information management, HIPAA, contract negotiation, RCM, and medical billing. He was most recently the Chief Executive Officer at Spotsylvania Regional Medical Center, HCA. Before this, he worked in several positions at LifePoint Health including American Division President and Interim CEO. He is currently independently consulting.
This article is adapted from the GLG’s March 13 teleconference, “COVID-19: Patient Hospitalization Costs.” If you would like access to this teleconference or would like to speak with Michael Clark or any of our more than 700,000 experts, contact us.
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