By Paul Lorrah
Over the past 8 weeks news reports have told stories of booming hospitals: emergency departments overwhelmed by patients, imminent shortages of both ICU beds and ventilators, and even the need to create makeshift field hospitals to accommodate extra patients.
At the same time, they also showed how hospitals are furloughing staff and cutting salaries and retirement benefits.
Congress has allocated $100 billion to bail out hospitals in financial trouble.
How can hospitals be so busy and still lose so much money?
Well the reality is if you would have walked through a few hospitals at various points over the last few months, you would have seen parts of the answer.
They were mostly empty!
While large hospitals typically run near capacity, many have been largely empty.
Why? Two reasons;
1. Hospitals preparing for the surge of Covid-19 patients opened up beds by decreasing or cancelling elective procedures and admissions.
2. The extremely large number of COVID-19 patients actually never showed. The number of patients in most areas were far less than projected by the media and health professionals such as Dr. Fauci.
Because of that the hospitals are still waiting for non-Covid-19 patients to come back.
Expenses have gone up as hospitals redeployed staff, re-purposed beds to create additional ICU capacity, paid overtime, and bought needed supplies at higher cost.
But an even more important reason that hospitals are currently running in the red is because of how they are paid.
Hospital margins — how much they make or lose — vary dramatically across different types of care. Procedural services such as hip and knee replacements, colonoscopies, and radiology tests are the cash cows for hospitals, while they break even or lose money on non-procedural admissions, such as those for pneumonia or psychiatric conditions.
Hospitals often lose money when a patient has a prolonged ICU stay because of the high expense of providing intensive care.
So the profitable procedures and radiology tests subsidize the unprofitable care, and it sort of works out in the end.
Except when it doesn’t, like during a viral pandemic when hospitals have to cancel all the lucrative services, pivot almost exclusively to unprofitable treatment, and provide selected patients with weeks of critical care. It is no surprise that hospitals are running massive financial deficits.
In every respect, the pandemic has exposed the discrepancy in how hospitals are paid for doing procedures compared to providing non-procedural medical care.
This policy approach was problematic even before the pandemic struck. It encourages the hospitals to perform potentially low-value but well-reimbursed procedures with little benefit and unnecessary risk to patients.
From a hospital accountant’s perspective, it is far better to invest in highly reimbursed but minimally beneficial technologies like proton beam therapy than in effective and evidence-based cancer treatments. Hospitals in financial trouble may cut back on critical but relatively poorly reimbursed facilities such as emergency departments and psychiatric wards, with predictable adverse effects on community and mental health.
Since reimbursement discrepancies are also reflected in the salaries of clinicians who provide procedural versus non-procedural care, they distort the physician labor market and harm public health. Areas of the country with higher numbers of primary care physicians have better survival, but our best and brightest medical students are understandably less likely to enter this relatively low-paying field.
What are your thoughts?