Healthcare’s Looming Financial Implosion

America needs to establish a Hospital System Super Fund immediately of $300 billion-$600 billion……….

By John T. Fox

John T. Fox has been CEO of Beaumont Health since 2015 and previously was CEO of Emory Healthcare in Atlanta for 16 years.

As American hospital systems have rapidly shifted their operations to screen, test and treat patients infected with the COVID-19 virus, an immediate healthcare financial crisis is looming. It will be large and come on faster than people expect and could cripple the core of America’s hospital systems during this pandemic.

The best way for me to illustrate this is using Beaumont Health as an example. We are an eight-hospital system with 3,400 beds, $5 billion of annual revenue and 38,000 employees. Over the past few weeks we have converted much of our system to a large-scale COVID-19 screening, testing and treatment organization. That also means we have eliminated over 80% of our surgery/procedure volumes and significant portions of our imaging and related historical services to prepare for the surge. We must also preserve our ability to treat non-COVID-19 urgent patients for trauma injuries, births, heart attacks, etc.

What this also means is that our $5 billion of annual revenue will be reduced by $1 billion to $2 billion as we shift from high-revenue surgical and related procedures to much lower revenue medical inpatients with all the acute complications associated with COVID-19.

The 20% to 40% drop in our revenue can in no way be absorbed by our 4% operating margin and cash reserves. That missing revenue is critical cash needed to meet our payroll of 38,000 healthcare employees every two weeks. Our situation is similar to other hospital systems across America. It will become crystal clear as we move into April and begin the real surge from the pandemic.

So what needs to be done now? America needs to establish a Hospital System Super Fund immediately of $300 billion-$600 billion. The purpose of the fund would be to allow hospital systems and other providers to draw down periodic interim payments (PIP) to offset the revenue implosion as we shift to medical patients. Over decades, American hospital systems have become dependent on higher-margin surgical, imaging and other procedures cross subsidizing low- or negative-margin complex medical patients often with many chronic diseases.

COVID-19 will pull out that cross subsidy financial crutch very quickly. It will be further exacerbated by our patients being laid off and losing their employer healthcare coverage.

A PIP draw-down system can happen relatively quickly as the CMS has the cost reports for last year on every hospital in America. The federal government knows our revenue and expenses by hospital and can rapidly adopt a PIP payment drawdown system to keep American hospitals functioning and millions of health care workers getting paid. Every hospital system can submit their PIP attestation request to the fund with information on our actual revenue, expenses and other items as needed. That can be compared to pre-COVID-19 data the government already has on all of us and stabilizing PIP payments would then be issued to keep hospital systems going.

I would also note that COVID-19 is very different than the Ebola, SARS and other situations I worked on at Emory Healthcare. At Emory we were able to effectively isolate and treat a small number of Ebola and SARS patients while keeping the rest of the hospital system functioning and overall financially healthy. COVID-19 is totally different and requires us to convert much of American healthcare to deal with the pandemic and the surge of medical patients we will experience. To do so requires immediate action with respect to a stabilizing federal fund. About 85% of America’s hospitals are not-for-profit organizations that operate on relatively thin margins. Their financial viability can collapse absent immediate action.