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Thursday, Jul 25, 2024

Hospitals in a Squeeze

Valley area hospitals are living with an unwanted irony: The coronavirus pandemic has called on them to deliver as never before. Yet instead of making money, they’re losing it. Hospitals were instructed by the state to accommodate a 45 percent increase in capacity, and many in the Valley area paid to erect high-quality tents. While that much-feared rush never quite materialized in numbers forecast, the COVID-19 patients the hospitals do have require expensively intensive care. At the same time, hospitals are losing business in the rest of the house. Most elective surgeries – a major source of revenue – have been put off along with some other services that normally are dependable revenue sources. Overall, hospitals have seen fewer people coming through the door during the coronavirus pandemic, several said. “You are taking care of very high-intensity patients and at the same time, your volume is significantly lower across the board and particularly in the (operating room),” said Dr. Bernard Klein, chief executive of Providence Holy Cross Medical Center in Mission Hills. “Hospitals make a significant amount of their money through procedures.” Providence Holy Cross is No. 1 on the Business Journal’s list of hospitals by revenue beginning on page 16; it reported $595 million in revenue last year. Klein is also chairman of the Hospital Association of Southern California. Providence typically is filled to about 85 percent of total capacity, Klein said. But during the pandemic that number dipped to a low of about 60 percent of capacity. As of last week, the hospital was at more than 70 percent capacity with nearly 260 patients. Gustavo Valdespino, chief executive of Valley Presbyterian Hospital in Van Nuys (No. 9 on the Business Journal’s list) expects the combined loss of business and additional costs to total $30 million to $40 million. The standalone hospital reported $342 million in revenue last year. This expectation doesn’t take into account the federal government’s CARES Act, which would help hospitals offset the cost of caring for COVID-19 patients, Valdespino said. Other hospital systems including Adventist Health and Kaiser Permanente have felt the squeeze, too. Jennifer Swenson, chief executive at Adventist Simi Valley (No. 16 on the list with revenue last year of $168 million), said her gross revenue is down about 43 percent compared to previous months. Admissions are down 35 percent. However, the world still needs hospitals and Swenson is, long term, optimistic. “Moving forward, this is going to be a slow climb up the mountain. When we have the ability to do medically necessary surgeries, that’s not going to all of a sudden get us back to where we were before,” she told the Business Journal. “It’s going to be a slow climb to really build our volume back up.” Most hospitals in the Valley area started accepting medically necessary surgeries on May 4, with a flex plan in place to limit such procedures if COVID-19 cases surge. “In accordance with Gov. Gavin Newsom’s state-of-emergency policies during the pandemic, the vast majority of surgeries and procedures we are currently performing are for urgent and (emergency) conditions, including cancer care,” said Dr. Nancy Gin, regional medical director of quality and clinical analysis for Kaiser Permanente Southern California. “The remainder are performed after a thorough risk and benefit discussion with each patient.” High risk, cost Newsom required hospitals to prepare for a surge of patients and make available an additional 45 percent of their space for patient overflow. Tents were a popular option, but each hospital handled the demand differently. A common thread was an immediate uptick in costs. There was the cost of the tents, of course. Swenson said hospitals also poured money into additional supplies, more beds and more staff for COVID patients both in the ICU and in the testing facilities for those coming to the tents outside the emergency department. “A bad surprise was probably how vulnerable we were with our supply chain in the beginning,” she said. “We thought we had adequate (personal protective equipment). That became very challenging when we had patients that we weren’t getting (test) results back between three and seven days,” explained Swenson. “We were using all that PPE equipment on potentially non-COVID patients because we didn’t know.” Alice Issai, chief executive of Adventist Health Glendale (No. 4 on the list with $473 million in revenue last year), said that to provide proper care for COVID patients in the intensive care unit, it takes five more hours per patient, per day, than a non-COVID patient in the ICU, necessitating more staff and higher costs. “It’s like a perfect storm here and our costs have gone up as a part of that,” she explained. “It’s not a pleasant picture. But being part of a large organization has helped support those hospitals that have been hit hard.” One way Adventist Simi Valley offset PPE costs was to get support from Adventist’s 22-hospital system. That came with the clout a large health-care system can wield when everyone in the industry is bombarding suppliers for the same resources. “If we were a standalone hospital and had a local bank supporting us, and we needed to cover payroll and find funds for PPE, it would be very challenging right now,” said Swenson. “But because we’re part of a system, we can leverage that strength.” Standalone hospitals, however, don’t have that luxury. Valdespino said Valley Presbyterian had to buy from a “secondary market” to get the needed PPE through group purchasing. The organization paid seven or eight times the normal price for this equipment, he said. “We paid more, but we felt that it was important to make sure we had the PPE on hand to be sure we protected our patients,” explained Valdespino. “Isolation masks, for instance, we were paying 60 cents a mask.” Valley Presbyterian normally pays 6 cents a mask, making this secondary market purchase 10 times the normal price. Valdespino said this was a choice made by the hospital to pay more via a secondary seller that was able to deliver the proper equipment in time, and not a price jump from its normal supplier. Insurance changes One possible long-term financial impact from the pandemic will be a major shift from commercial insurance payments to mostly Medi Cal, the government program that pays for lower income patients. Medi Cal only pays about 33 percent of what commercial insurance pays. “We know that’s coming, which doesn’t pay nearly as well,” Klein noted. “Nothing has changed yet, but we all know it’s coming when we have 12 percent, 15 percent unemployment (in the nation). People are losing their insurance, so we anticipate a marked increase in uninsured, or in California’s status, a shift from commercial to Medi Cal.” Klein and Swenson see the federal government CARES package as temporary relief, but given the magnitude of the pandemic, it may not be enough. “The interesting part of this is going to depend on the economy, right? A significant amount of our community has been impacted by employment, applying for unemployment; what does that mean for insurance?” Swenson asked. “I can’t predict what the future might look like from a specific perspective, but what I can say is it’s still going to be challenging for many months.” Perhaps paradoxically, those least affected by this potential shift are hospitals that already take the majority of Medi Cal patients, such as Valley Presbyterian; 70 percent of the nonprofit’s business comes from such patients, Valdespino said. Potential staff cuts Although hospitals are starting to see revenue upticks through a wider range of surgical procedures, administrators still expect staff furloughs in the coming months. Klein hasn’t made staff cuts at Holy Cross yet, but the option has been discussed, he said. “Every ER I know of, their volume is down 50 to 60 percent,” explained Klein. “So, what do you do with all those employees and physicians? You can’t easily put an ER nurse up on the floor because it’s a whole different skill set. Turning toward telemedicine, you still don’t need as many people as when you’re in the ER.” Hospitals have had to “flex” their staffs to accommodate needs that change by the day, sometimes by the hour. When a hospital is seeing a surge in patients, for example, staffing is ramped up to accommodate them and cut back in other areas. “Our overall inpatient setting in the hospital was not impacted, but of course our emergency department and our outpatient surgery, imaging and all those areas were impacted,” Swenson said. “We’ve flexed by 20 to 25 percent to help with the situation. We are starting to see those numbers go up from our emergency room and other non-COVID patients feeling more comfortable and coming back. We’ll start to bring more staff back,” Issai at Adventist Health Glendale added. Klein at Providence Holy Cross said that for the first six weeks of the pandemic, his hospital took steps to keep the staff financially whole. But he added: “We’re clearly going to have to cut expenses.” Valley Presbyterian has “chosen not to” furlough any of its staff despite a 60 percent drop in ER visits and 70 percent drop in surgeries, Valdespino told the Business Journal. “We’ve actually had to provide more staff for the care of the COVID patients,” he said. “Obviously there’s less staff for the OR, ER, and we’ve tried to redeploy staff for other activities throughout the hospital as best as we can.”

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