Tennessee hospitals lose $1 billion
Resuming optional services helps, but industry’s recovery will run into 2021
Only a month ago, Tennessee hospitals braced for a surge of coronavirus patients. Now they face a new challenge — cash. While the pandemic puts Tennessee’s 144 hospitals on the front line fighting the lethal respiratory ailment, the fight has oddly twisted medical economics. The hospitals are running out of money not due to the fight, but the absence of patients.
“It’s unprecedented. I don’t think anything really compares to this,” said Dr. Wendy Long, chief executive of the Tennessee Hospital Association. “All hospitals have been negatively affected financially as a result of the COVID-19 outbreak.’’
Across the state, hospitals idled workers, cut pay and looked for ways to trim expenses. Some mull bankruptcy, shutdowns or mergers with other medical companies.
In Nashville, HCA Healthcare has suspended its dividend and cut senior executive pay while Envision Healthcare considers a bankruptcy reorganization. In Franklin, Community Health Systems on Tuesday reported first-quarter income, but largely because of a quick burst of federal financial aid. In Memphis, Methodist Le Bonheur announced pay cuts and employee furloughs.
The financial gloom traces in part to good news. Hospitals braced for tens of thousands of virus victims, but the outbreak proved less severe than expected. Not all hospital beds reserved for COVID-19 patients filled. Nor did the regular patients hospitals routinely rely on for income take the empty beds.
Millions of routine medical procedures were postponed, such as knee replacement, which can run up a $57,000 bill. Governors and mayors banned these so-called elective surgeries to make sure
medical resources weren’t diminished in the ramp-up to fight the virus. Postponing the elective procedures drained hospital revenue. Short on cash, hospitals and clinics sent more than 4,000 workers in Tennessee home on layoff or furlough — sent home without pay — in recent days. Long’s THA figures the state’s hospitals lost $1 billion in the past month, compared to $1.7 billion in revenue earned over the same period a year ago.
On Friday, Gov. Bill Lee’s order expired barring elective surgery. Letting in patients for optional services will help hospitals bring in much needed revenue. But the recovery for the hospitals will be slow. Experts figure it may be late 2020 before the medical industry puts the lash of the coronarvirus recession behind it and recalls all its employees.
“I think they all will come back, but I think it does take time,” said University of Memphis economist John Gnuschke. “It’s not going to be as fast as everyone would like. They’ll bring back people as they need them and as it can be justified.’’
Cutbacks made across health care industry in Tennessee
For weeks, economists have predicted double-digit jobless rates in April across Tennessee. That’s because the virusfighting lockdown sidelined at home the people employed in unessential businesses. Now the April jobless rate is expected to rise even higher. Essential workers in health care are losing jobs, too, not just in hospitals, but across the health care industry, which employs 300,000 people in Tennessee.
By this Friday throughout the nation, 60% of medical practices will have furloughed some employees, and 36% will have let go workers permanently, reports the Medical Group Management Association. By June, 60,000 family medical practices will have closed or scaled back, affecting 800,000 U.S. workers, estimates the American Academy of Family Physicians.
Cutbacks already are roiling towns and cities. Among the actions taken in recent weeks in Tennessee:
❚ In Chattanooga, Erlanger Health System announced employee furloughs and pay cuts for senior leaders.
❚ In Columbia, Maury Regional Health furloughed 340 employees.
❚ In Cookeville, Regional Medical Center furloughed 400 employees.
❚ In Franklin, Williamson Medical Center furloughed 200 employees.
❚ In Jackson, West Tennessee Healthcare furloughed 1,100 of 7,000 employees and closed outpatient surgery after the statewide ban on elective procedures,
which began March 23, led to an $18 million loss in March.
❚ In Johnson City, Ballad Health furloughed 1,300 workers, cut senior executive pay and suspended retirement contributions after figuring cash flow would drop $150 million over 90 days.
❚ In Memphis, Tenet Healthcare furloughed about 10% of its St. Francis hospitals workforce, part of a corporatewide cutback by the 113,000-employee Dallas-based company.
Beyond the hospitals, the fall in health care spending stretched medical clinics and medical suppliers. In Nashville, real estate investor Healthcare Realty Trust recently noted 15% of its tenants have asked for relief on lease payments. The investor owns about 200 medical-related buildings in the region, which is home to 18 health care companies whose shares trade on stock exchanges.
Other investors are gathering money to buy health care-related businesses. Many firms appear distressed, worth less now than before the pandemic. Nashville Health Care Council board member Nancy-ann Deparle is a founding partner of New York investor Consonance Capital Partners, which recently announced it has assembled an $856 million investment fund named Consonance Private Equity II L.P.
The distress in the health sector appears statewide. WARN notices filed with the state of Tennessee, required in the event of major layoffs, show cutbacks rippling statewide. For example:
❚ HCFS Health Care Financial Services, a medical billing firm, laid off 189 employees at Knoxville and 220 nearby at Maryville.
❚ In Nashville, Oral & Maxillofacial Surgery laid off 64.
❚ In Franklin, Results Physiotherapy laid off 59.
❚ In Memphis, Poplar Healthcare Management LLC laid off 50.
❚ In Johnson City, dental supply firm JCM International laid off 29.
How long will financial challenges continue?
With the governor’s order barring elective procedures lifting on Friday, revenue will begin flowing into the hospitals again as patients show up for routine surgeries, though the recovery will take time for the medical industry.
In each region of the state, hospital executives will be on guard for a future rise in coronavirus cases. Rather than open all surgical operating rooms to routine patients, hospitals are expected to confer and reserve ample resources for actual and potential COVID-19 patients.
“I think you will see across the state, whether in urban or rural areas, hospitals approach this by incrementally increasing the number of operating rooms they open up,” said Will Cromer, THA chief operating officer.
While doctors, nurses and hospital officials have learned to make good use of protective gear — N95 face masks are now re-sterilized for reuse rather than discarded — hospital staffs don’t want to find resources strained if they plunge into routine procedures and then face a new wave of COVID-19 outbreaks.
What also could limit the hospitals’ financial rebound are those very people who have already postponed elective procedures. Hospital executives doubt many people will quickly reschedule hospital visits after being told for weeks to stay away except for severe emergencies. “We don’t know how quickly the public will respond,” Cromer said, adding that “it’s hard to say how long” financial challenges will confront hospitals. “It’s certain it will continue to be a financial issue for the rest of the year.’’
What’s ailing the health care sector, a lack of revenue, stands in sharp contrast to the United States’ standing among industrial nations. No major country devotes a larger share of its economy to health care than America at 18%.
“For a long time we ignored the problem, ignored the fact that our extremely expensive health care system generates mediocre results,” said Gnuschke, the Memphis economist. “It’s a long-term structural issue that’s showing up right now.’’ Five years ago, Mississippi officials commissioned Gnuschke for a statewide study of the state’s hospitals. He figures some small hospitals in financial distress then will close or look for buyers in the coming months.
“We’re going to see failures come out of the situation we’re in,” Gnuschke said. “It’s not in the urban hospitals. It’s the small rural hospitals that were struggling to be financially solvent. Now they’ll be under water, whether they’re in the (Mississippi) Delta or in rural Tennessee.”
In the rural areas, residents have become used to avoiding local health facilities. Instead, they drive to big cities’ medical clinics for treatment by specialists, Gnuschke said.. That extra business hasn’t spared the big-city hospitals. In 2016, Harvard Business Review noted, many top-ranked medical facilities, including Cleveland Clinic, were stretched for cash. That’s because hospitals hired more specialists and bought expensive gear. Rivals in turn spent heavily, too, setting off a kind of medical arms race in cities throughout the nation, Forbes magazine reported.
Insurers, meanwhile, pressed hospitals to pare costs, Gnuschke said, leading to overworked nurses and staff and soaring bills for patients. When mayors and governors barred elective surgeries, hospitals were caught with high expenses even as revenue plunged.
In Nashville, HCA Healthcare reported outpatient surgeries in early April had dropped 70% and inpatient admissions fell 30%. HCA, the nation’s largest forprofit operator of hospitals with 168 facilities, avoided layoffs while senior executives’ pay was cut by $125 million per month. HCA also lined up $2 billion in financing from Bank of America and Wells Fargo to tide it over.
“The recovery period is really difficult to determine at this point,” William Rutherford, HCA’S chief financial officer, told Wall Street analysts. “We don’t know what the full effects and the damage to the economy are going to be.”
For the first quarter, HCA’S after-tax profits were $581 million, or $1.69 per share of stock, compared with $1 billion, or $2.97 per share, in the same period a year ago
What has helped hospitals financially is recent federal aid. On Tuesday, Franklin-based Community Health Systems reported $18 million in first-quarter profits, equal to 15 cents per share of outstanding stock, despite a 5.2% decline in admissions. Federal aid kept the company from losing money. Community Health said tax benefits provided by the federal coronavirus stimulus package amounted to $240 million.
Separately, the company received a $245 million grant through the stimulus package and accelerated Medicare payments of $1.2 billion, which are a kind of loan. The aid flowed in April and will be reflected in the second-quarter earnings statement. Community Health, whose leading shareholder is Shanghai-based Shanda Group, operates and leases 99 hospitals in 17 states including nine Tennova facilities in Tennessee.
Just what the Tennessee hospital landscape will look like in a year, no one can say. Washington’s stimulus measure has pumped cash into hospitals nationwide in an effort to keep them open and keep their staffs available to fight the pandemic.
Even if they are big and investorowned hospitals, Gnuschke said, the country needs the facilities on call.
“They provide an essential service to a large percent of our population,” he said. “You cannot let them fail.’’