Relief funding distributed to hospitals across 2020 and 2021 “may have been larger than was necessary for many hospitals,” researchers wrote in a recent review of more than 4,400 hospitals’ financial data.
The Rand Corporation analysis published in JAMA Health Forum found that three-quarters of U.S. hospitals logged positive net operating income during the first two years of the pandemic.
Median operating margins during those years also reached “an all-time high” of 6.5%, as opposed to the 2.8% operating margins researchers found from 2017 to 2019.
Conversely, excluding hospitals’ COVID-19 relief funding reduced median operating margins to −1.0%, the researchers found.
Additionally, 46.3% of the hospitals sampled in the analysis would have experienced new financial distress (defined as a negative net operating margin that was lower than in pre-pandemic years) if the relief funds were excluded from their financials, and 16.3% of the hospitals entered financial distress even with the emergency funds, according to the study.
The findings paint a mixed picture of the relief effort. While the government funds appeared to be “especially important” to hospitals that served historically underserved and vulnerable patient populations, researchers said that the support was “counterbalanced” by the money that went to hospitals that didn’t need it.
“This resulted in moving many hospitals to peak historical operating margins (i.e., profitability), rather than simply restoring them to pre-pandemic operating margins,” they wrote.
For their analysis, the researchers reviewed 2017 to 2021 financial data from RAND Hospital Data, the organization’s cleaned-up collection of Healthcare Cost Report Information System data submitted by Medicare hospitals to the government. Their final sample spanned 4,423 short-term acute care and critical access hospitals across the country, excluding Veterans Health Administration hospitals, Indian Health Services hospitals and some children’s hospitals.
Across the sample, median within-hospital change in net operating income before and after 2020 was $1.9 million, according to the study. Removing COVID-19 relief funds showed a median within-hospital change of −$2.0 million. The researchers also noted that 6.4% of the hospitals fared “substantially worse in 2020/2021 compared with their prior performance” with a median within-hospital dip of $8.9 million in net operating income and new negative margins.
Adjusted analyses conducted by the researchers also found key trends among census tracts in which 20% or more of their population identified as Hispanic. Hospitals in these areas were significantly more likely to experience new financial distress during the pandemic despite their relief funding.
Another analysis that removed relief funding from net operating income showed that government-owned hospitals, teaching hospitals, Disproportionate Share Hospitals and those serving communities that were 20% or more Black largely escaped pandemic financial distress thanks to the support funds, researchers wrote.
Hospitals with uncompensated care costs exceeding 10% of their total operating expenses in 2019 were less likely to receive relief funding, as were critical access hospitals, health system-affiliated hospitals and for-profit hospitals, according to the study. However, the latter two were also found to less often enter financial distress during the pandemic, while critical access hospitals still received enough emergency financial support to, broadly, keep them from entering distress, researchers found.
“It should be underscored that policymakers were required to act quickly to direct COVID-19 PHE funding; however, based on the COVID-19 lessons, it will be important to consider alternative ways of allocating scarce public dollars to support our nation’s health system in crisis,” the researchers wrote.
“To that end, policymakers should ensure they have the necessary data to estimate the effects and to proactively build models to simulate relief payments and their effects on hospital finances, which could be used to better inform decision-making regarding the allocation of emergency aid.”
Policy researchers and the government alike have reviewed the relief funding distributions for public health emergency policy takeaways. A review published this past week by the Office of Inspector General, for instance, found that Provider Relief Fund payments to hospitals in 2020 less often reached facilities serving heavily Hispanic/Latino American populations.
Policy researchers have also pointed to the hospital industry’s exceptionally strong 2021 as a counterpoint to 2022’s widespread losses, which are often highlighted by lobbying groups seeking higher reimbursement rates from government and commercial payers.