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Despite COVID-19, many wealthy hospitals had a banner year with federal bailout

Jordan Rau and Christine Spolar, Kaiser Health News on

Published in Business News

In April 2020, the Mayo Clinic in Rochester, Minnesota, forecast up to $3 billion in lost revenue because of the pandemic. Instead, Mayo, which received $338 million in federal relief funds, ended the year with revenue that was $202 million higher than in 2019. Mayo recorded a $728 million surplus, which equaled a 5.2% margin.

“It gave us a shot in the arm when we needed it,” said Dennis Dahlen, Mayo’s chief financial officer. Later, when it seemed likely Mayo would run a surplus, executives debated what to do with the federal funds.

“Honestly, we considered dropping the margin,” Dahlen said. After weighing their options, Mayo “landed in a middle-of-the-road decision” by returning $156 million to the federal government.

“We considered it with what everyone else was doing … and we thought about what was good for society,” Dahlen said. “'Nonprofit’ doesn’t really mean no profit. It means tax-exempt. We still have to create earnings so we can reinvest in ourselves.”

Mayo ended the year with $14 billion in investments, $3 billion more than it had in 2019, a 29% increase.

The funds were, indeed, a lifesaver for some. Marvin O’Quinn, president and chief operating officer of CommonSpirit Health, said “there was never a thought of turning back the money.”

Despite receiving $1.3 billion in relief funds, CommonSpirit, based in Chicago, ended last year with a $75 million deficit, which translated to a 0.2% loss.

“We have been set back by a year,” O’Quinn said. “All the things we wanted to do — to renovate, to building new facilities, to expand our service — we’ve had to slow up to get through the crisis.”

Scattershot Relief

The first $50 billion in relief funds “was sent out indiscriminately as a life support,” said Ge Bai, an associate professor at Johns Hopkins Bloomberg School of Public Health. HHS tried to target subsequent distributions. It sent $22 billion to 1,090 hospitals with large numbers of COVID-19 patients. It sprinkled an additional $16 billion among hospitals that serve poor populations, Native American tribes, people in rural areas and children.

But even with the targeted aid, recipients included well-endowed academic medical centers and major urban hospitals. Only $14 billion took profitability into consideration, HHS documents show. HHS restricted those payments to hospitals with 3% or lower profit margins.

 

Wealthy hospitals also benefited because HHS used a broad definition of lost revenue. If a hospital earned less than in the year before, or simply less revenue than it had budgeted for, it could chalk up that difference to the pandemic and apply the relief funds to it. The implications garnered little attention at the time as they were overshadowed by the concerns about how HHS was doling out the money rather than how it could be used.

In September, HHS attempted to tighten its overall limits on how much money the hospitals could keep by basing it on the difference from the previous year’s net income rather than overall revenue — a number that in many cases would be much lower. The goal, the department said, was to “prohibit most providers from using PRF [Provider Relief Fund] payments to become more profitable than they were pre-pandemic, to conserve resources to allocate to providers who were less profitable.”

The American Hospital Association complained that would punish hospitals that had behaved responsibly by cutting costs and be an “administrative and accounting disaster,” as many hospitals had already spent the grant money.

HHS backed down a month later, citing “significant attention and opposition from many stakeholders and Members of Congress.” Not fully satisfied, Congress cemented the rollback in a December law.

Some hospital executives attributed their surpluses to their aggressive cost-cutting measures.

NYU Langone Health, for instance, received $461 million in relief funds, which covered about a third of its pandemic-related losses, said Daniel Widawsky, chief financial officer. Another third of Langone’s losses was absorbed by the record-high financial performance in the months before the pandemic, he said, and prompt cost control addressed the rest.

Widawsky said that at the beginning of March Langone canceled travel, froze hiring, paused construction and stopped discretionary purchases. “The first three days in March, we locked down spending,” he said. “If they wanted to buy a pencil, they had to call me.” Langone ended its fiscal year in August with $208 million in net income, and recorded a $136 million surplus in the final quarter of 2020, or 5.5%. Earlier this year, two credit agencies upgraded their outlook on Langone from stable to positive.

Despite accepting $942 million in bailout funds, NewYork-Presbyterian Hospital had a $457 million operating deficit, a 7% loss, at the end of September. It was a sharp turn from September 2019, when the system recorded a $166 million surplus, a 2.5% gain.

The system, which declined to comment, has not yet released its financial metrics for the final three months of 2020, but Fitch projected it would remain in the red. Still, NewYork-Presbyterian remains fiscally solid: Its most recent disclosure reported $3.8 billion in cash and short-term investments, enough to keep operating for more than a year.

©2021 Kaiser Health News. Distributed by Tribune Content Agency, LLC.