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COVID-19 hit Iowa hospitals’ income hard, new data show

Seventy-six of Iowa’s 82 critical access hospitals ended the last fiscal year with negative operating margins, an IowaWatch analysis of their most recently reported financial data shows.

Only six critical access hospitals – facilities with 25 or fewer beds and designated by Congress as essential for rural communities – brought in more revenue from patient care than what they spend on providing that care, the data show.

“If you were vulnerable before this, you’re more vulnerable now,” Kirk Norris, the Iowa Hospital Association’s president and CEO, said in an interview this week.

The new data include 50 rural hospitals whose fiscal years ended June 30, 2020. It also includes the distribution of federal stimulus money to stem revenue losses after the onset of COVID-19. Other fiscal years in the data, found in annual financial reports compiled by the American Hospital Directory, end April 30, 2020; Dec. 31, 2019 or, for a few, June 30, 2019.

Stimulus money helped 37 of the 50 hospitals ending their fiscal year in June 2020 report net income, IowaWatch’s analysis showed. But COVID-19 clearly disrupted hospitals forced to switch from offering their main revenue producer – outpatient services – to focusing on patients with COVID-19 last spring.

Iowa hospitals’ situation falls in line with a national report late last week from The Chartis Center for Rural health, a rural health analysis and consulting business. Chartis’ report showed 46% of the nation’s rural hospitals are working with a negative operating margin. That is up from 39% in 2015, showing a growth rate that alarms industry leaders.

“The rapid spread of COVID-19 in rural communities has further destabilized the ability of rural hospitals to meet the needs of their communities,” the report stated.

The Chartis report showed that 77% of rural hospitals’ revenue comes from the outpatient services, which hospitals shut down for two to three months in spring 2020 to shift resources to treating COVID-19. Margins ranging from $6 to $15 raised in outpatient revenue for every $1 raised in inpatient revenue usually are common in rural Iowa hospital financial records.

“The impact was severe, it was sudden, and hospitals were ill-prepared to weather that shutdown,” Michael Topchik, the Chartis center’s national leader, said in an interview this week.

The Chartis report showed 64% of Iowa’s critical access hospitals with negative operating margins in 2018 and 2019.

Chartis’ study showed the average rural hospital had 33 days of cash on hand. It identified Alabama, Kansas, Mississippi, Arkansas and Wyoming as having the highest percentage of rural hospitals with negative operating margins. The study’s authors noted that rural hospitals where Medicaid was expanded under the Affordable Care Act generally outperform financially rural hospitals in states resisting expansion. Iowa expanded Medicaid under the act.

Hospitals at Risk

A Sheps Center for Health Services Research database at the University of North Carolina shows that 19 rural hospitals closed in 2020 and that 135 have closed since 2010 because of financial problems. None of last year’s closures was in Iowa but one was close: the Mayo Clinic Health System’s hospital in Albert Lea, Minnesota. Albert Lea residents recruited MercyOne North of Mason City to replace lost services, such as obstetric care.

Some Iowa hospitals are among those at risk of closing, although Chartis declined to identify them. “You may think of this as protecting the innocent,” Topchik said. “We would certainly not want to do harm to a rural hospital that’s in a delicate financial situation. You can imagine creditors banging on their door, trying to get paid first, and so on and so forth. It would almost be like a run on the bank.”

The Iowa Hospital Association reported last year that 17 Iowa hospitals already were at financial risk more than a year before COVID-19 hit the state. The association reported in December that Iowa hospitals, overall, lost an estimated $433 million in March through October because of COVID-19. The association has not updated that figure.

“It definitely has stressed people,” Norris said this week about hospitals’ response to the contagious coronavirus. “It’s driven down volumes at hospitals. People still have not returned in full force to pre-COVID business levels, whether it’s in clinics or other lines of service at hospitals.”

A Few Positives During the Crisis

Norris said Paycheck Protection Program (PPP) money helped hospitals keep staff as COVID-19 surged, settled for a bit and surged again. Also, he said, the pandemic led hospitals to set up respiratory clinics and boosted respiratory care in areas beyond their emergency rooms. Hospitals are better prepared with personal protection equipment (PPE) and have been able to upgrade equipment for items like ventilators and anesthesiology support, he said.

However, Iowa’s hospital administrators have only spent 40% to 50% of the federal stimulus money they’re received because of the rules for receiving that money, Norris said. Those rules strictly state that COVID-19 relief funds only can be spent on expenses directly related to a COVID-19 expense.

Hospitals administrators fear that the federal government could determine that some spending administrators consider to be related to COVID-19 does not fit the rules, Norris said. “They’ve pretty much set the money off to the side, to return it if they cannot account for it according to the rules,” he said.

“Our message to policymakers would be: let them keep the money that they have because then you’re looking at that lifeline extending through 2021 and probably the year 2022, and things getting a little more normalized.”

Iowa hospitals received more than $760 million in federal aid from the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Paycheck Protection Program, an IowaWatch review of stimulus records shows.

Roughly six of every 10 hospitals in the state were willing to comply with accompanying rules and be approved for advanced Medicare and Medicaid payments, too. The advances must be paid back. Iowa hospitals were eligible for $928.3 million in accelerated and advance Medicare payments, IowaWatch reporting shows.

Concerns at Rural Hospitals

Chartis’ Topchik said he sees some positives emerging from almost a year of experience with COVID-19 because of how many small hospitals have adapted.

“I think there’s some light at the end of the tunnel, which says, ‘We’re good at this type of innovation. We’re smaller and, therefore, we’re nimbler and we can effect change more rapidly in rural healthcare settings,’” he said.

But hospital managers Chartis surveyed said employee burnout is their top immediate concern, followed by finances, the study showed. The two concerns flip places when hospital managers are asked about their long-term concerns.

More than 5,200 Iowans had died of COVID-19 as of mid-February, the state’s coronavirus data web page showed.

A University of Washington health data tracker and predicter shows that number could be close to 6,000 by June 1. The health tracker changes as new data become available. For example, it once predicted a little more than 5,000 deaths by March 1.

The Chartis report said that, while COVID-19 was prominent in urban areas in spring 2020, it had shifted primarily to rural areas by January 2021. Nearly 250,000 new COVID-19 cases and 4,084 deaths were reported in rural counties the first week of January, the report stated.

In mid-October, a median of 6.6% of adults in U.S. rural hospitals were there because of COVID-19, the report stated. That share had grown to 34.2% on Jan. 8. In urban areas, the median share of adult hospitalizations in U.S. hospitals grew from 9.1% on Oct. 16 to 25.8% on Jan. 8, the report stated.

“The stories that we’re hearing from the field are truly harrowing and, I would add, heroic,” Topchik said about front-line hospital workers caring for those patients.

“We’re seeing huge pressure on nurses, in particular, and we’re seeing nurses just taking retirement early, just unable to deal with this. We’re hearing physicians talk about seeing more death in the last several months than they’ve seen in 25 years.”

Read the full article on the Des Moines Register website here.