Federal aid results in soaring profits for some hospitals

Community Health Systems was in trouble as 2019 came to a close. The company had lost hundreds of millions of dollars, failing in its aim to profit by running hospitals such as East Georgia Regional Medical Center. But then came federal aid meant to rescue hospitals foundering in the pandemic.

CHS not only got out of the red, but was sitting on $70 million of extra cash, according to statements to shareholders.

Tennessee-based CHS is just one hospital company doing work in Georgia that reaped rewards from government pandemic aid far beyond what it took to just get by. Congress in the midst of the pandemic saw hospitals and other health care providers sinking as they suspended elective services and as leery patients continued to stay away. As part of the CARES Act stimulus law, it put $175 billion toward provider relief.

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But in the effort to get the money out fast, no one did a complicated means test to decide who really needed the money. Instead, as a quick back-of-the envelope measure, the law’s successive payouts largely divided up the money based on how much hospitals used to make.

“Essentially what that did is it gave more money to the hospitals that were wealthier to begin with,” said Karyn Schwartz, a senior fellow at the Kaiser Family Foundation, a research organization.

Some hospitals got a lifeline. Others got a treasure chest.

Companies that own own hospitals across the state—from Savannah to Statesboro to Augusta to Rome—got enough taxpayer money after expenses to put millions in the bank. Nonprofit hospitals also got millions—some of them on the brink of financial collapse, some with a history of wealth and expansion.

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Hospital Corporation of America, a for-profit company based in Nashville whose Georgia hospitals include Memorial Health in Savannah, said it banked $822 million in profit from the CARES Act alone for the first half of the year, helping make a total $1 billion profit for that period. From April to June, profits were up 38% from the previous year. HCA said that it would hold off distributing the money to shareholders in case it needed the funds as the pandemic continues.

Dr. John Sy, a Savannah contract doctor at HCA’s biggest hospital in Georgia and president of the Georgia College of Emergency Physicians, said he could not speak specifically to HCA’s finances. However, he said, “It does sadden me when the rich get richer and the poor close down.”

Stopping spending

The pandemic produced a financial crisis for hospitals, clinics and doctors' offices across the nation. For a time, hospitals largely stopped outpatient surgeries, as well as many inpatient ones. Those are lucrative procedures that pay for much of a hospital’s operations. To make matters worse, patients who might have gone to the doctor or the emergency room stopped showing up. Revenue tanked.

Many hospitals were in deep water. Some that were weak to begin with shut down entirely, including two in Georgia that will close next month.

“Essentially what [the CARES Act] did is it gave more money to the hospitals that were wealthier to begin with."

- Karyn Schwartz, senior fellow at the Kaiser Family Foundation,

For the first six months of this year, Community Health Systems said that its hospitals and clinics lost an estimated $1 billion in net revenue. That decline came on the heels of a 2019 net loss of $675 million.

“There has never been a time period of the types of losses we’re talking about,” said Jim Blake, managing director at Kaufman Hall, which reports on hospital finances and studied about 800 hospitals, including some in Georgia. “In 100 years you have not seen what we saw in March, April and May.”

In response, many hospitals put spending on hold and furloughed or laid off employees.

ExploreGeorgia hospitals return millions in COVID-19 relief money

But even as some hospitals emptied out, relief money rolled in.

At CHS, which has 93 owned or affiliated hospitals in 16 states, various government relief programs resulted in the $70 million profit. In addition to CARES payments, CHS received money through the Paycheck Protection Program and accelerated Medicare payments.

Other large publicly traded hospitals systems also reported significant profits, even as admissions fell. Tenet Healthcare reported that its profit in the second quarter more than tripled compared with the same period a year earlier. Universal Health Systems, which operates behavioral health facilities in Georgia, reported a second quarter increase in net income of $13 million.

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Cancer Treatment Centers of America, a private for-profit company with a hospital in Newnan, won’t say whether it or the company made or lost money, or what happened to its customer flow during the pandemic. But it gave the AJC a study saying that cancer care generally fell 37%.

The Newnan hospital alone received at least $5 million from the CARES Act, according to CTCA.

Georgia nonprofit hospitals have not released figures showing whether relief payments exceeded their lost revenues and increased costs.

However, Piedmont said it ended up with a “positive operating margin.” From March to June, it said it received $172 million from CARES while it lost $231 million in revenue and had additional expenses related to its COVID preparation and response.

Emory Healthcare did not say whether it came out with money in the bank. But it reported receiving about $219 million in pandemic stimulus funds, while it said net patient revenues for March and April were down $257 million from budget.

Grady Health System, which received more than $126 million in provider relief payments, did not answer questions on the issue. Northside also didn’t respond. Federal records show Northside Hospital Atlanta received more than $88 million in provider relief payments. Children’s Healthcare of Atlanta said its net revenue was down 11% due to COVID, but it did not respond to a question about its net income. Its Atlanta hospital received almost $22 million in provider relief funds.

Wellstar said it received $145 million in CARES Act funds. It said the additional money plus spending cuts allowed it to come out even. Among the cuts, Wellstar furloughed more than 1,000.

“There has never been a time period of the types of losses we're talking about. In 100 years you have not seen what we saw in March, April and May."

- Jim Blake, managing director at Kaufman Hall

Most other Georgia nonprofit hospitals also furloughed workers. Emory conducted rolling furloughs and cut hours, affecting about 1,500 workers. Children’s Healthcare of Atlanta furloughed 250 workers and still has over 100 out, it told the AJC.

Financial analysts say that tremendous uncertainty still lies ahead for hospitals, with the outbreak continuing and the possibility of a second wave of COVID-19 cases this winter.

“There are certainly reasons to believe that hospitals will get through this,” said Daniel Steingart, a vice president at Moody’s who analyzes nonprofit hospitals. “But it’s not happy days are here again.”

The financially weak may be forced to consolidate or may not survive.

“It’s hard to sit here and just say everybody’s going to be OK,” Steingart said. “If you were larger, wealthier going into this, then you’re in a much better position than if you were not.”

Blake, of Kaufman Hall, said the hospitals that are the firm’s clients are better prepared at this point because of experience navigating the pandemic. Still, he said, “What it all means we don’t know exactly. But it will be difficult.”

If the time comes when additional government support for hospitals is considered, analysts say Congress should take a second look at its playbook for deciding who gets what. Giving money to those who got money, whether Medicare or other revenues, was fast, they say. But there are other rich sources of health data, such as demographics, that could better target need.

What Congress did “is not a weird choice in health care,” said Ziad Obermeyer, an associate professor in public heath at the University of California at Berkeley. “That’s a choice that actually gets made a lot that has some problems,” and in the rush to get money out it wasn’t a surprise.

“On the other hand,” he said, “I don’t think it’s hard to change the way we do things.”