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June 1, 2022
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David Burda
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Economics Policy System Dynamics
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Feds Gave Hospitals a Little Extra for Their Trouble

I’m all in favor of helping those in need, and I’m fine with paying higher taxes to help those in need. But there’s a limit to my generosity, and that’s when the federal government is writing blank checks to those who don’t need it. It’s the difference between you telling me how much you need to stay afloat through next week and you asking me for more than you need and banking the extra cash for a rainy day.

Those thoughts came to mind after I read a new study in JAMA Health Forum on COVID relief funds and hospital profit margins. You can download the study here. Not only did the relief funds cover hospital operating losses, but they made hospitals more profitable than they were before the pandemic. It’s like the federal government decided to give hospitals a tip, or a little something extra for their trouble as is often done in Chicago.

Here’s how the study went down. Using data from the Rand Corp., three researchers with Johns Hopkins University looked at how three financial performance measures changed at nearly 1,400 hospitals from 2019 to 2020 after the hospitals’ got their share of $175 billion in subsidies through various COVID relief programs from the federal government. The three measures were: operating profit margin; total profit margin; and nonoperating revenue as a percentage of total revenue.

Here’s what they found:

  • The average operating profit margin dropped to -7.4 percent from -1.0 percent
  • The average total profit margin increased to 8.1 percent from 6.7 percent
  • Nonoperating revenue increased to 10.3 percent of total revenue from 4.4 percent

In other words, the infusion of COVID relief money fueled nonoperating revenue so much that it made hospitals more profitable even after the big drop in operating margins.

Here’s what the three researchers said about their results: “Although hospitals experienced a sizeable reduction in operating margins in 2020, their overall profit margins remained similar to those in prior years, suggesting that the COVID-19 relief fund effectively offset the financial losses for hospitals during the COVID-19 pandemic.”

Offset? Now, I don’t know the three researchers, but I’m sure they’re very nice people and polite as they come in the health services research world. But “offset” is not the word I would have used to describe what happened.

If you’re on the fence about whether hospitals and health systems deserve more COVID bailout money like they’ve been lobbying for, read the new study. What word comes out of your mouth?

To learn more about how we feel about this topic, please read, “The Pandemic Has Been Very Very Good to Rural Hospitals” and listen to “Bailing Out Hospitals and Health Systems,” both on 4sighthealth.com.

Thanks for reading.

About the Author

David Burda

Dave Burda began covering healthcare in 1983 and hasn’t stopped since. Dave writes this monthly column “Burda on Healthcare,” contributes weekly blog posts, manages our weekly newsletter 4sight Friday, and hosts our weekly Roundup podcast. Dave believes that healthcare is a business like any other business, and customers—patients—are king. If you do what’s right for patients, good business results will follow.

Dave’s personal experiences with the healthcare system both as a patient and family caregiver have shaped his point of view. It’s also been shaped by covering the industry for 35 years as a reporter and editor. He worked at Modern Healthcare for 25 years, the last 11 as editor.

Prior to Modern Healthcare, he did stints at the American Medical Record Association (now AHIMA) and the American Hospital Association. After Modern Healthcare, he wrote a monthly column for Twin Cities Business explaining healthcare trends to a business audience, and he developed and executed content marketing plans for leading healthcare corporations as the editorial director for healthcare strategies at MSP Communications.

When he’s not reading and writing about healthcare, Dave spends his time riding the trails of DuPage County, IL, on his bike, tending his vegetable garden and daydreaming about being a lobster fisherman in Maine. He lives in Wheaton, IL, with his lovely wife of 35 years and his three children, none of whom want to be journalists or lobster fishermen.

 

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