By Todd C. Frankel & Tony Romm
Even as the coronavirus pandemic draws attention and resources to the nation’s doctors and hospitals, the health-care industry is suffering a historic collapse in business that is emerging as one of the most powerful forces hurting the U.S. economy and a threat to a potential recovery.
The widespread economic shutdown deployed to reduce transmission of the novel coronavirus hit hospitals and health-care providers with particular force as they prepared to face the pandemic.
Most elective surgeries nationwide were postponed beginning in mid-March. Dentists offices were closed. Physicians stopped seeing all but the sickest patients in their offices. Stay-at-home orders didn’t just prevent people from dining in restaurants — they led people to avoid medical services, too, amid concerns about the disease the virus causes, covid-19. More than 200 hospitals, including Children’s National Hospital in Washington, have furloughed workers.
The result was that health-care spending declined at an annualized rate of 18 percent in the first three months of the year, according to Commerce Department data released last week, the largest reduction since the government started keeping records in 1959.
And that proved the biggest factor in driving the annualized 4.8 percent decline in first-quarter gross domestic product, which itself was the worst overall contraction in GDP since the Great Recession.
An even worse decline is projected for the current quarter, which ends in June. Morgan Stanley forecasts a record 37.9 percent drop in second-quarter GDP.
The breathtaking downturn underscores that the health-care sector is not only crucial to saving lives, but also vital to an economic recovery. The United States spends far more on health care as a percentage of its economy than any other developed nation, according to the Organization for Economic Cooperation and Development.
Historically, policymakers have wanted to curtail health spending so that it drains less from households’ — and the nation’s — wallets. But a precipitous drop like this one creates financial carnage as its effects are felt in broad swaths of the economy.
As states move to loosen stay-at-home orders, many hospitals and health-care providers are inching back toward routine operations. Some of the economic pain could be eased by the $175 billion in federal aid — recently approved but being disbursed slowly — for health-care providers hurt by the pandemic’s fallout.
Many economists expect that a return to pre-pandemic performance is a long way off — and could be hindered if coronavirus infections surge again later in the year.
“I’m seeing multiple health systems reporting revenue losses that are 50 percent or more,” said Vivian Ho, a health economist and professor at Rice University in Houston. “And while I think they’re going to rebound, it will be slow and won’t go back to what it was before.”
Ho’s own experience illustrates how a pandemic can hurt business.
She delayed two big-ticket medical procedures scheduled for earlier this year — an MRI exam and a medically necessary contact lens, each procedure worth about $5,000 to health-care providers. She expects she will have both done in the coming weeks, illustrating how a backlog of medical procedures could help hospitals and doctors.
But Ho and other health economists see new constraints on how health care is delivered, reducing the efficiency and revenue in a sector that accounts for about 18 percent of spending in the $20-trillion-a-year U.S. economy.
Guidelines for social distancing and infection control could mean less crowded waiting rooms — or the abolition of waiting rooms altogether. That makes the traditionally tight scheduling in doctors’ offices more difficult. Expensive diagnostic equipment, such as that used for MRIs, was often booked back-to-back to help recover the purchase cost. Those days could be gone.
“How efficient can you be in a world of social distancing?” said Craig Garthwaite, a health economist and director of the Program on Healthcare at Northwestern University’s Kellogg School of Management.
One possible new tool is telemedicine — with which doctors visit patients using videoconferencing. Telemedicine has seen a surge in use during the pandemic, popularized by patients reluctant to go to doctors’ offices and by health-care providers pushing the video visits as a way to keep delivering services.
For the provider, this form of consultation often yields less revenue than a traditional office visit.
HealthPartners, a provider and health insurance company based in Bloomington, Minn., has 1,800 physicians at its hospitals, surgery clinics and primary care offices in the upper Midwest. It has gone from zero to 70,000 telemedicine visits in one month, chief executive Andrea Walsh said.
“Video visits are here to stay,” she said.
But the pandemic has been financially devastating for HealthPartners. It announced furloughs for 10 percent of staff — a number the provider bumped closer to 20 percent as tighter financial projections rolled in. Walsh’s pay was cut by 40 percent. Other top executives had their pay cut by up to 30 percent.
HealthPartners resumed some visits and procedures that were postponed by covid-19 preparations. Its dentistry operations remain mostly on hold, with just one of its 14 dental clinics open.
“The reduction in revenue is significant, and we’re not able to reduce costs to track with that exactly,” Walsh said.
The Willis-Knighton Health System in Shreveport, one of the largest providers in Louisiana, counted more than 55,000 admissions last year. But it faced financial troubles in recent months, according to Brian Crawford, its chief administrative officer. He cited rising costs because of the pandemic and revenue shortfalls caused by precipitous declines in the number of medical procedures.
Admissions dropped by half in a roughly four-week period in April in comparison with the same time a year ago, Crawford said. Emergency-room visits also are down, by 54 percent, he added, and surgeries are down by about 80 percent. The hospital system, like many others facing tough financial decisions, has placed some staff members on leave, targeting those who had been working in parts of the health system now less in demand.
“People don’t like to talk about dollars and cents, but the dollars are what allow us to keep the hospital running,” Crawford said. “The dollars are what allow us to maintain patient care.”
UK HealthCare, a collection of hospitals, clinics and other services affiliated with the University of Kentucky, expects to rack up $160 million in losses by the end of June, the close of its fiscal year, according to top officials there.
A portion of its unexpected shortfall came as doctors and administrators raced to provide hundreds of additional beds for covid-19 patients, a capacity they ultimately did not need. But much of the gap involves the loss of elective surgeries and other procedures that are so critical to the network’s bottom line, said Mark Newman, executive vice president for health affairs.
“We had an economic issue,” he said.
Hoping to right its balance sheet, UK HealthCare has scrapped some of its planned improvements to facilities. Those were to include transforming the 12th floor of its Lexington-based facility into what Jay Grider, its chief physician executive, referred to as a “pandemic wing” — an idea that predated the coronavirus crisis. Hospital officials managed to convert their intensive care unit to fit the demand. Grider described the situation as “ironic.”
Last week, UK officials also placed 1,700 employees on what they call “no-pay status,” meaning select workers are tapped as needed and can exhaust their vacation days and paid leave before applying to collect unemployment.
Many workers ultimately may return in new positions, Newman predicted, as the hospital turns to technology such as video consultations to serve patients unwilling or unable to visit health-care facilities.
But the demand for patient procedures remains in flux.
“I would say roughly 60 percent of the people we contacted were willing to come back,” Newman said, noting that the rest of patients awaiting procedures signaled they would wait until they saw the present health crisis “blowing over.”
“It shows the economic vulnerability whenever your health system is built on a low-margin business,” Grider said. “I don’t think anybody would have expected a medical crisis would result in a hardship for medical providers.”