Despite COVID pandemic, many wealthy hospitals had a banner year with the federal bailout
Last May, Baylor Scott & White Health, the largest nonprofit hospital system in Texas, laid off 1,200 employees and furloughed others as it braced for the then-novel coronavirus to spread. The cancellation of lucrative elective procedures as the hospital pivoted to treat a new and less profitable infectious disease presaged financial distress, if not ruin. The federal government rushed $454 million in relief funds to help shore up its operations.
But Baylor not only weathered the crisis, it thrived. By the end of 2020, Baylor had accumulated an $815 million surplus, $20 million more than it had in 2019, creating a 7.5% operating margin that would be the envy of most other hospitals in the flushest of eras, a KHN examination of financial statements shows.
Like Baylor, some of the nation’s richest hospitals and health systems recorded hundreds of millions of dollars in surpluses after accepting the lion’s share of the federal health care bailout grants, their records show. Those included the Mayo Clinic, Pittsburgh’s UPMC and NYU Langone Health. But poorer hospitals — many serving rural and minority populations — got a tinier slice of the pie and limped through the year with deficits, downgrades of their bond ratings and bleak fiscal futures.
“A lot of the funding helped the wealthy hospitals at a time, especially in New York, when safety-net hospitals were hemorrhaging,” said Colleen Grogan, a health policy professor at the University of Chicago. “We could have tailored it to hospitals we knew were really suffering and taking on a disproportionate amount of the burden.”
In Baylor’s case, the system, which runs Baylor University Medical Center in Dallas and 51 other hospitals, said it spent $257 million last year on pandemic-related costs, including protective clothing for employees and patients and creating isolation rooms. Baylor has $197 million in unspent federal relief funds to use this year to cover costs of battling the virus and refrigerating vaccines, it said.
“Our COVID-19-related expenses and lost revenue continue to exceed the funding we have received to date,” Baylor said in a statement to KHN.
Other well-heeled hospitals or large systems faced bigger problems. Both NewYork-Presbyterian Hospital and CommonSpirit Health, a 140-hospital Catholic system that operates in 21 states, lost money despite federal grants in the vicinity of a billion dollars each. A few systems, including the forprofit chain HCA Healthcare, returned federal funds when they saw they had skirted their worstcase scenarios. But most spent the aid and held onto any leftover money and new grants to cover anticipated pandemic costs this year because hospital executives fear more case spikes.
Much of the lopsided distribution was caused by the way the Department of Health and Human Services based the allotment of the initial bailout funds on hospitals’ past revenue. That favored institutions with well-off patients who have private health plans over those that rely on lower-paying government insurance, which is what many poor people use.
HHS distribution formulas did not take into account which hospitals had enough assets to survive.
Baylor, for instance, began 2020 with $5.4 billion in cash and investments, enough to keep it running for 238 days, the financial disclosures show.
Hospitals that ended the year with profits were entitled to federal aid because of the extraordinary latitude Congress and HHS set in how hospitals could classify their pandemic costs.
Last fall, when HHS attempted to limit how much aid hospitals could keep based on their profits — so the money could be redirected to struggling hospitals — the effort was swiftly beaten back by the industry and Congress. HHS officials declined requests for an interview but noted in a statement that Congress had ordered it to revert to its “broader definition of permissible use of PRF funds.”
“The Biden Administration continues to review programs and policies including considerations for the unallocated funding under the PRF program and the $8.5 billion recently appropriated under the recently signed American Rescue Plan Act,” the statement said.
Avoiding a Drawdown of Reserves
The bailouts were initiated last spring to help health care providers ride out a once-in-a-century public health calamity. The money designated to hospitals and other health care providers from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and subsequent legislation totaled $178 billion.
It was intended to offset all costs of treating infected patients, including purchasing ventilators, masks, gowns and other personal protective equipment. Congress further authorized hospitals to use the money to compensate for a drop in revenue when they shut down elective surgeries and nonemergency treatments to prepare for the anticipated deluge of COVID-19 patients.
The money, referred to as the Provider Relief Fund, helped many poorer hospitals avert cash crunches, layoffs and bond rating downgrades. A survey by the consulting firm Kaufman Hall found that the median hospital gain during 2020 would have been 0.3% without the federal support. With it, half of hospitals posted gains of 2.7% or more, below the 2019 median margin of 3.1%, according to the firm, which also produces analytic work for the American Hospital Association.