Most pandemic relief to NC hospitals has gone to institutions sitting on billions
The pandemic delivered a bruising financial blow to North Carolina’s hospitals, particularly the smallest of them.
Starting in mid-March, hospitals here – like those across the nation – had to postpone non-emergency procedures to free up beds for COVID-19 patients. That created major financial problems for small hospitals, which depend on lucrative elective surgeries to keep the doors open.
With that in mind, Congress agreed to spend billions to help hospitals and other health care providers stay afloat during the pandemic.
But as the New York Times reported recently, most of the bailout money nationally has gone to large, wealthy hospital systems that critics say don’t need it.
Hospitals in North Carolina got more than $600 million from the federal Provider Relief Fund. An Observer analysis found that the majority of it went to just four large hospital chains with billions in combined reserves: Atrium Health, Novant Health, Duke Health and UNC Health Care.
So far, relatively little of the federal grant money has gone to dozens of smaller hospitals, many of which are financially struggling as a result of the pandemic.
That’s because the federal funding formulas were based largely on how much money hospitals received from Medicare and other sources last year.
“If you’re going to base it on what you got last year, the rich will get richer – and the poor will get poorer,” said Dr. Robert Berenson, an expert on health care finance with the Urban Institute, a Washington research group.
Pandemic batters small hospitals
The coronavirus hammered the bottom lines of hospitals across North Carolina.
Starting on March 23, state Secretary of Health and Human Services Mandy Cohen asked hospitals to suspend all procedures and surgeries that could safely be delayed.
Since mid-March, North Carolina’s hospitals have lost more than $980 million per month in revenue from elective procedures, according to Cody Hand, senior vice president of the N.C. Healthcare Association, which represents the state’s hospitals. The money from the federal government has covered less than half that amount, Hand said.
On top of that, hospitals have had to spend millions for personal protective gear – and for the staffing needed to handle a surge of patients suffering from COVID-19.
Even before the pandemic hit, many small rural hospitals in North Carolina were struggling, Hand said. About two-thirds of them were either breaking even or losing money, he said.
The federal government is distributing $10 billion to help the nation’s rural hospitals and health clinics during the pandemic.
But some small hospitals could wind up closing if they don’t get more help, Hand said.
“Those rural hospitals are the ones that are really suffering and struggling right now,” Hand said. “… I don’t think the rural hospitals have gotten enough (federal help) proportionately.”
Dr. Roxie Wells, president of Cape Fear Valley Hoke Hospital in Raeford, said her 41-bed hospital had a profit margin of just 1 to 2 percent before the pandemic. Since then, she said, it has seen its revenue plunge by 60 percent.
In April, her hospital furloughed about 100 of its 310 employees.
Her hospital received about $600,000 in CARES Act money. But that, Wells said, covers “just a fraction of our losses.”
Randolph Health, which owns a 145-bed hospital in Asheboro, filed for Chapter 11 bankruptcy on March 6, largely because of debt from a 2008 hospital expansion. The hospital system had begun to improve its financial position over the past 18 months, said CEO Angela Orth. But then the pandemic hit. In March alone, the hospital system lost $2 million, Orth said.
Randolph Health has received more than $7 million in federal relief money, but Orth said she’s not optimistic that will cover its losses.
“Without the stimulus money, it would have created an unsustainable situation for us,” Orth said.
Large hospitals have billions in reserves
Large hospital systems have taken a financial hit from COVID-19, too.
Atrium, the state’s largest hospital chain, suffered a $30 million operating loss in the first three months of the year, and “COVID-19 has negatively impacted our bottom line to a far greater extent during April and May, as coronavirus cases became our primary focus,” spokesman Dan Fogleman wrote in an email to the Observer.
The system has received $231.7 million in federal CARES Act grants, Fogleman said.
“As a non-profit, municipal hospital authority, Atrium Health has a financial responsibility to pursue whatever funding may be available to offset the significant financial losses incurred during the current coronavirus pandemic,” Fogleman wrote.
The system continues to provide billions of dollars in free care to uninsured and underinsured patients, and it has not furloughed or laid off workers during the pandemic, Fogleman said.
Novant, meanwhile, expects to see its revenue drop by $300 million through the end of June, according to spokesperson Caryn Klebba. The system has received $100 million in CARES Act funding.
But unlike most small hospitals, Atrium and Novant have billions in reserves. Atrium has more than $5 billion in investments, according to its latest balance sheet. Novant had more than $3 billion in cash and investments on hand at the end of 2019, according to its latest annual report.
“We’ve only had a third of our losses covered, which is why we need – and thankfully had – those reserves,” Klebba said.
But Berenson, the expert from the Urban Institute, questions why hospital systems with such massive reserves need as much federal help as they’re getting. He and others contend the federal funding formulas are unfair because they fail to consider how much each hospital has in the bank.
“I think the safety net hospitals are the ones who get screwed by this. The large hospitals are the ones who will get the bulk of the money,” Berenson said. “… If hospitals are doing so well that they were able to put this kind of money into surplus, why wouldn’t you expect that to be the first draw when a crisis came around?”
Critics also note that Atrium and Novant — like many large hospital chains — are non-profits, a designation that allows them to avoid paying most taxes.
A spokesman for the U.S. Department of Health and Human Services said the agency has sought to distribute relief funds in a way that is “fast, fair, simple and transparent” and that department Secretary Alex Azar “is making certain that his approach represents the best thinking across the government.”
“While Congress did not direct HHS to determine the financial strength of each recipient, HHS is acutely aware of the financial hardship many facilities and providers are facing,” the spokesman wrote in an email to the Observer. “That is why HHS has, and will make targeted distributions to facilities and providers that have been disproportionately impacted by the coronavirus pandemic.”
Will small providers close their doors?
Others, however, continue to question whether the funding formulas have been fair to smaller health care providers.
Dr. Craig White, who owns an independent primary care practice in Davidson, said federal reimbursement for large hospital systems has been “more than fair.”
“But as of yet, it has not been equitable to independent primary care providers that the nation needs for access and affordable care,” he said.
He said his practice has gotten some financial assistance from the federal government, but “it came nowhere near to covering the loss.”
While he’s confident his practice will weather the financial storm brought on by COVID-19, he said he worries about smaller, rural practices that didn’t have an emergency financial cushion.
Orth, the CEO at Randolph Health, worries about the future for smaller hospitals, too. Many of her hospital’s patients can’t afford to travel, she said.
“If we weren’t here, they would either go untreated or they’d have to find a way to get to a larger hospital,” she said.
And that, she said, leads to a larger worry: Some of those patients “just wouldn’t make it.”
This story was originally published June 5, 2020 at 2:00 PM.
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