Providers sideline employees, cut pay as pandemic saps revenue
AN INDUSTRY that for the past couple of years has been one of the nation's dominant job creators now finds itself at the other end of the spectrum.
Hospitals and other healthcare providers across the country say the worsening coronavirus pandemic, which has so far killed almost 6,700 Americans, is threatening to drain them of cash. Heeding state orders, they are cutting back on lucrative and reliable, non-urgent procedures, like knee replacements and cataract surgery, to free up resources for COVID-19 patients. Other patients are canceling doctor's appointments out of fear and state shelter-in-place orders, leaving some clinicians with no work.
“I don't think anyone can point to a circumstance where this level of systemic volume and revenue challenge has faced virtually every provider in the country,” said David McMillan, chief financial officer and a managing principal at consultancy PYA.
To stay afloat, an increasing number of hospitals and physician practices are sending staff home without pay, whittling down workers' hours, or slashing compensation and benefits, particularly in parts of the country that have not yet seen an overwhelming number of coronavirus-stricken patients.
Boston Medical Center last week furloughed 700 employees. Erlanger Health in Chattanooga, Tenn., froze retirement contributions and temporarily laid off administrative workers. Atrius Health, a physician's practice in Massachusetts, is furloughing 1,100 nonclinical employees for a month and temporarily witholding a portion of pay for nearly 3,000 workers.
“It's not a decision we wanted to make nor do we take it lightly, but we have to take immediate action to ensure that we can sustain our clinical operations during and after the COVID-19 crisis ends,” Donald Lloyd, CEO of St. Claire HealthCare, explained in the Kentucky hospital system's announcement that it would furlough 300 workers not directly involved in care delivery or the COVID-19 response. The system experienced a 40% drop in gross revenue in March and expects at least a 65% drop in April, a spokeswoman said.
Job losses in the healthcare industry totaled 42,500 in March, according to the latest data from the U.S. Bureau of Labor Statistics. Ambulatory providers, including physician practices and dentists, comprised 96% of the losses.
Providers' cost-cutting moves are at odds with the circumstances of hospitals in hard-hit areas like New York or Michigan, where governors have called for out-ofstate doctors and nurses to help fill staffing shortages. Meanwhile, providers outside of these so-called coronavirus “hot spots” are sitting idle and bracing for the moment the pandemic picks up in their communities.
“The economics of hospitals are upside down because a lot of stuff they used to do that was profitable, they are no longer doing,” said Dan Mendelson, founder of healthcare consultancy Avalere Health. “It's now become an existential issue for a lot of not-for-profit hospitals that are struggling to balance costs and expenses.”
While it didn't disclose the effects on its revenue, Prisma Health, the largest not-for-profit health system in South Carolina, said its patient volume decreased 77% while outpatient visits decreased 40% in just two weeks. That, and staggering price increases for personal protective equipment prompted it to furlough some administrative employees.
For-profit chains are not immune either. Tenet Healthcare Corp. last week announced it was scrapping its 2020 guidance, furloughing about 500 fulltime positions and issuing another $500 million in debt to boost liquidity.
Rational hospital operators would first reduce the hours of part-time and as-needed employees, then look to cut pay or workdays for the full-time and salaried workers, said Dr. Mike Schatzlein, former CEO of Ascension Health's St. Thomas Health. Furloughs would be used as a last resort, and ideally, executives would share in the pain by taking a pay cut, he said.
“The last thing they want to do is lose good associates,” he said, but ultimately, “you can't let the whole institution die because of consideration for associates.”
At HCA Healthcare, which ended 2019 with revenue totaling $51.3 billion, members of the senior leadership team each will take a 30% cut in pay until the pandemic is over.
While some providers are furloughing employees with an eye toward bringing them back, very few are laying off their workers because most believe they will soon be needed again, said Mimi Moore, a partner at law firm Bryan Cave Leighton Paisner. By and large employers are preserving workers’ health benefits while they are on furlough, but there are cases where their health insurers won’t permit it.
Some hospitals are easing anxiety by providing stability and certainty for employees. Pittsburgh-based health system UPMC ensured its staff they would continue to be paid at their current rate for normally scheduled hours through May 9, even if they are redeployed to different roles or asked not to work. “We are asking our employees to be there for the community, so this is a way to be there for our employees,” said John Galley, UPMC’s chief human resources officer.
It’s not totally clear why UPMC is able to protect pay while other systems are resorting to furloughs. The system has diversified revenue from its health plan and access to cash. It sought a line of credit and several bank loans totaling $2 billion in response to the pandemic, according to rating agency S&P Global. UPMC also had $5.1 billion in unrestricted cash and investments at the end of 2019. An S&P report shows the median for unrestricted reserves among not-for-profit health systems was $1.5 billion in 2018.
Even so, UPMC will be squeezed by COVID-19 just like the rest of the industry. S&P in late March revised the sector’s outlook to negative from stable, noting the COVID-19 pandemic could lead to higher operating costs and declines in reserves.
The Coronavirus Aid, Relief, and Economic Security, or CARES, Act, signed into law last month will funnel $100 billion to hospitals to help with costs and lost revenue from the pandemic. The American Hospital Association has asked the federal government to quickly distribute the money directly to providers and allow them to be used for paid leave for quarantined or furloughed staff. Hospitals will need to track how they spend the funds so they aren’t clawed back later for being improperly used, experts said.
The AHA is also begging the largest private health insurers to provide advance payments because the government’s “actions alone cannot fill the gap resulting from reduced revenue from private insurance,” it wrote in a letter to insurer CEOs. Medicare has allowed providers to receive advance payments, and at least one commercial insurer—Blue Cross of Idaho—is giving independent physicians the option.
Schatzlein said resolving the shortage of personal protective equipment along with widespread testing should allow systems to return to normal operations. Testing would help providers predict and plan for when the pandemic will peak in their counties.
“We’ve got to get good at doing this,” Schatzlein said. “The issue is not: How do we live with no elective procedures for six months? We need to get to a county-by-county strategy.” ●