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Jul 15, 2020 2020-07 Faculty Finance Research in Education

Projected hospital losses may outpace federal financial relief, research shows

Gies College of Business professor Tatyana Deryugina says hospitals may take more than three years to recover from the double blow of increased costs for care of COVID-19 patients and the revenue loss of elective procedures. Providers argue federal grants and loans to date will not cover the overall projected revenue shortfall, and according to the study “Natural Disasters and Elective Medical Services: How Big is the Bounce-Back?” they are likely right.

Tatyana_Deryugina_news“Hospitals will have a difficult time recouping all of the lost revenue from the pandemic anytime soon,” said Deryugina, an associate professor in the Department of Finance, who co-authored the study with MIT’s Jonathan Gruber and Adrienne Sabety of the National Bureau of Economic Research.

The study says while there is no experience in recent history exactly like this pandemic, the impact of natural disasters offers a close parallel. It used 16 years of administrative billing data from Medicare and looked at how quickly elective procedures and the revenue from them rebounded following hurricane strikes, relative to nearby unaffected counties.

While the study found the US healthcare infrastructure to be resilient overall, with charges and visits rebounding back to baseline within four months of the hurricane, it suggests that the current extent of federal grants and short loan repayment periods with high interest rates could lead to significant permanent losses for healthcare providers.

To date, Congress has appropriated $175 billion in grants to address the economic strain caused by the pandemic. The Centers for Medicare and Medicaid Services (CMS) granted $34 billion in advanced payments for expected Medicare charges that must be repaid in 120 days at a 10.25% interest rate. The HEROES Act, which has been approved by the US House of Representatives and moved to the Senate, advised hospitals to apply for emergency funds quarterly for eligible expenses and 60% of lost revenues, excluding federal grants from previous COVID-19 legislation.

"There are fundamental limits as to how much providers can make up after the initial event."

“Hurricanes of greater intensity caused a larger initial drop, but the revenue bounce back is about the same as less powerful ones. This suggests there are fundamental limits as to how much providers can make up after the initial event,” said Deryugina.

Deryugina, Gruber, and Sabety found the average hurricane reduces elective services by about 7% during the month it makes landfall. For more severe hurricanes, elective services fall more than 20% the month of the event and can take a year or more to make up lost revenues. Using these projections based on hurricane severity, the co-authors suggest it will take more than three years for the providers to make up the lost revenue from COVID-19.

“Because COVID-19 cases are rising again, this study’s current projections represent the best-case scenario, not the most likely,” said Deryugina. “The recovery time could take much longer.”

Gruber and Sabety partnered with Deryugina on this study because of her expertise in the financial repercussions of natural disasters. She has studied the fiscal cost of hurricanes and the economic impact of Hurricane Katrina on its victims.