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Health care providers around San Diego are bleeding money as a result of measures meant to prepare for a surge of coronavirus cases. Numbers are starting to emerge that show just how stark the situation really is.
UCSD Health Center has lost more than $50 million in revenue since March. Palomar Health has seen revenue losses of up to $800,000 a day. One San Diego doctor who runs his own small practice said he’s only seeing 20 percent of his normal volume of patients, and as a result has had to cut his staff’s hours by 20 percent.
Health care facilities at the center of the pandemic have canceled elective surgeries and drastically reduced outpatient services, resulting in reduced cash flow. The changes have led to pay cuts, reduced hours and even temporary layoffs for many health care workers.
Some doctors and nurses are, counterintuitively, being sidelined because hospitals can’t afford them as long as the most profitable parts of their operations no longer exist.
Federal relief funds are on the way. But experts caution that those dollars won’t fully cover the amount of money that’s been lost since hospitals pivoted to stopping the spread of the novel coronavirus and have had to stop providing many of the services, like elective surgeries, that make hospitals money.
The financial crisis is hitting smaller health care providers even harder and many have been forced to shutter. Physicians warn that the downsizing in health care providers could have damaging long-term impacts to patient costs’ and access to care.
Gov. Gavin Newsom has signaled that California would clear the way for hospitals to resume medical procedures that aren’t urgent. His stay-at-home orders in March were intended to free up beds and personal protective equipment in anticipation of a surge of COVID-19 patients, but with social distancing, the number of hospitalizations appears to be manageable.
“It’s absolutely good news,” said Glenn Melnick, a professor of health care finance at the University of Southern California, “but it puts more stress on the financial status of hospitals. You’ve created empty space and in doing that, you did the right thing, but except in a few places the patients have not come. And that empty space doesn’t generate revenue.”
There’s also a good reason why people might be avoiding emergency rooms right now.
“If you don’t feel you’re at a severe threat,” he said, “are you gonna … risk sitting around with people who have COVID?”
Statewide surveys suggest that virtually every medical practice has experienced a significant reduction in patients and revenue. The California Medical Association estimates that 11 percent of physician practices have temporarily closed and half have furloughed staff.
“The fallout from this crisis threatens to fundamentally alter California’s health care delivery system, not just during the COVID-19 outbreak, but for years to come,” the organization wrote.
Not all health care systems are getting hit equally, though. Roughly 80 percent of small practices, including those with one to 25 physicians, statewide have experienced a revenue decline of 50 percent or greater. Only 54 percent of large practices experienced the same decline.
In an April 7 email to staff, Diane Hansen, CEO of Palomar Health, promised that inpatient and bedside care would not be disrupted. But she announced a number of workforce changes, including a 21-day temporary layoff for non-essential staff and those who work on elective surgeries and outpatient services. The move furloughed 221 total employees.
“Needless to say,” she wrote, “the past several weeks have put a financial strain on our health system; up to $800,000 in lost revenue each day.”
Nurses and other healthcare professionals from around the region planned a caravan protest Monday outside the Tri City Medical Center in Oceanside and Palomar Health in Escondido. Tri-City has sent layoff and furlough notices to 24 nurses, according to the California Nurses Association.
In San Diego, USCD Health spokeswoman Jackie Carr said they’ve seen a drop in the hospitals’ average daily census and inpatient occupancy of between 25 and 35 percent, accounting for more than $50 million in lost revenue per month beginning in mid-March. It stems from a combination of surgeries being postponed and reductions in certain forms of care, including occupational therapy, physical therapy and cardiac rehab.
In general, Carr said, the hospital system’s revenue is down by approximately 30 percent with little to no offset in costs. Relief from the federal government, while appreciated, she noted, translated into just two weeks of revenue losses.
At the same time, Dr. David Folsom, the director of clinical psychiatry at UCSD Health, told his colleagues in an April 13 email that the pandemic will result in a roughly $1 million loss to their department alone. As a result, department leadership had decided to hit pause on replacing an employee vacancy until the next fiscal year and was not going to provide any quality incentive payments to clinicians for the year.
“For reference, most other departments in the school of medicine are decreasing clinician pay by 10%-20%, which we are not doing,” Folsom wrote.
Carr said UCSD School of Medicine had asked each department to evaluate how it could reduce its budget by 5 to 15 percent, but there have been no mandates on reducing compensation.
“These changes will not always be welcome or happy, but they are necessary,” Carr said. “In financial terms, no one is immune from SARS-CoV-2.”
Michael Kennedy, a representative of the California Nurses Association who works at UCSD Medical Center in Hillcrest, said the hospital system has agreed not to lay off full-time nurses until at least June 30, but it is reducing shifts for per diem nurses, who are part-time and flexible employees paid per day. As hospitals see fewer visitors, he said, full-time, or career, nurses are being retrained to screen patients and visitors and perform clerical work.
Kennedy, in the meantime, is keeping a close eye on the federal dollars flowing into San Diego. An analysis conducted by the California Nurses Association shows that UCSD Medical Center is at the top of the list, receiving $23.7 million so far. That’s 30 percent of the expected total.
Kennedy acknowledged the extreme pressure that hospitals are under, but said it would be unconscionable for those same hospitals to shed essential workers while receiving taxpayer support to shore up finances.
“These are extraordinary times,” he said, “but we also expect them to use that money responsibly, the money given by the federal government to not lay off nurses.”
One analysis that’s in the works for the California Health Care Foundation — and being preparing by Melnick — suggests that hospitals across California lost a collective $2 billion between mid-March and mid-April.
John Cihomsky, a spokesman for Sharp HealthCare, declined to participate in this story, citing a large number of media inquiries. Janice Collins, a spokeswoman for Scripps Health, did as well, writing in an email: “We are in the middle of some financial transactions and are not free to disclose financial information now for that reason.”
When the immediate bleeding stops, it’s not clear that the money Congress set aside in the CARES Act is going to cover it all. Some argue that the formula worked against California because it was based on Medicare billings and not the burden of the present moment. Kaiser Health News reports that the first $30 billion of relief is going disproportionately to states that are less affected by the coronavirus.
UCSD Health is hoping “future funds will be distributed under alternative methodologies to reach a broader audience and support those most impacted by COVID,” Carr said.
The funding formula has its defenders.
Christen Linke Young, a fellow with the USC-Brookings Schaeffer Initiative for Health Policy, said that considering how badly hospitals are hurting, getting the money out of the door quickly made sense.
“Even if it’s not a perfect allocation method, going fast is an important value here,” she said. “At the end of the day, instead of devising a precise, complicated 80-part formula, they’re making decisions quickly.”
She noted that the federal government is setting aside additional funding that hospitals can apply for based on the number of COVID-19 cases that they’re experiencing. Physicians who’ve been furloughed can also apply for income relief.
Even so, Anthony York, a spokesman for the California Medical Association, argued that the greater need right now is among smaller practices. Hospitals have all sorts of financial tools at their disposal, like bonding capacity, to weather the financial storm, he said. But some smaller practices may be forced to permanently close.
His group has offered advice for slowly opening back up hospitals but acknowledges that it won’t be easy or simple until COVID-19 testing and treatments improve. Testing capacity in San Diego is still falling short.
Dr. Ted Mazer, an ear, nose and throat doctor who runs his own practice in San Diego, said he was eventually forced to cut his staff’s hours by 20 percent.
“Last year was my busiest year ever,” Mazer said. “And now I am practicing at about 20 percent of my normal volume. That doesn’t pay my rent or office staff.”
Mazer applied for a Paycheck Protection Program loan through the federal government in early April, but his application remains in limbo. Even to maintain his staff at reduced hours is forcing him to go into the red.
It’s too soon to know how the coronavirus is going to change healthcare over the long term.
York said he would expect two things to happen: consolidations among health care providers, which will likely drive up costs for patients and reduce access, and a surge of demand after the pandemic ends, which will be difficult on a reduced health care workforce.
“You have all these people who haven’t gotten care because they’ve deemed it non-essential right now,” he said. “And as the health care system comes online, there is going to be a huge surge of, not COVID patients, but people requiring other treatment and services, and we won’t have the providers to care for them.”