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The Financial Impact of COVID-19 on Health Systems

July 15, 2020

By: Lindsay Burrows

The COVID-19 outbreak has brought about many clinical and operational challenges to hospitals and healthcare practices across the nation. Although some states have begun phased re-openings and healthcare providers have resumed elective procedures, many healthcare facilities and physician practices are facing financial crises as a result of the recent shutdowns. 

While healthcare providers are working around the clock to combat the COVID-19 outbreak, providers are experiencing a major decline in revenue due to the moratoriums on elective and non-essential healthcare services. Providers yield the highest return on revenue for elective procedures and outpatient visits. Over the past few months, patients have refrained from attending in-person visits for non-emergent healthcare services, and have opted to use telehealth platforms instead. To date, patients have remained reluctant to return to in-office visits considering the recent uptick in COVID-19 cases and the continued risk of community spread. The ongoing financial impact related to COVID-19 must be considered as an ongoing phenomenon, especially with a recent spike in cases.

The burden placed on the healthcare system due to chronic COVID-19 cases, coupled with the pre-existing strain on resources and the decline in elective procedures, has led to financial concerns for hospitals and group practices. Without the additional revenue from elective and non-essential healthcare services, many physician practices and hospital systems have reported that they are on the verge of financial ruin.

According to a June 2020 report from American Hospital Association, hospitals and health systems were estimated to lose more than $200 billion in revenue from March 2020 through June 2020. With clinical volumes plummeting nationwide, hospital revenue has followed suit. In comparison to last year’s clinical volumes, the average inpatient volume has declined by approximately 19.5%, while the average outpatient volume has declined by approximately 34.5%.

Healthcare experts predict that the recovery rate for hospitals and health systems will likely be slower than expected, even with the help of the federal government’s financial relief packages and states lifting moratoriums on elective healthcare procedures. With the recent support for telemedicine, many physician groups are experiencing economic hardship as patients are continuing to seek virtual healthcare services. During this COVID-19 period, telehealth visits have replaced routine in-person healthcare visits to the physician’s office, posing a threat to traditional primary care practices and general practitioners. An emerging transition to telemedicine for the primary care practices must, therefore, be considered as long-term preparations in response to COVID-19 unfold.

Hospitals, health systems, and physician practices are left to consider other avenues for financial sustainability. Some providers are considering the shift to a more value-based arrangement rather than volume-based, in efforts to stabilize revenue in the future. Providers are also considering potential partnerships to survive the financial downturn of the pandemic. Larger hospital systems are exploring mergers, while physicians’ practices and smaller hospitals are contemplating acquisitions, both of which will accelerate the consolidation of the healthcare system and subsequently impact the costs of healthcare services.

While plans for healthcare consolidation through mergers and acquisitions may lessen the financial burden of COVID-19, consolidation may reduce market competition and increase costs for healthcare services. In the past, hospital consolidation has led to the integration of additional providers, which, in turn, increased the cost of services. The negative financial impact faced by providers and potential increased costs to patients must be monitored and mitigated in response to developments in the coming months considering the ongoing COVID-19 response.