PHE funds may have overpaid hospitals, study suggests

Public health emergency funding during the COVID-19 pandemic helped hospitals' net operating margins hit an all-time high, according to a study published in JAMA Health Forum July 14. 

The study examined national RAND data and American Community Survey data between 2017 and 2021 to evaluate hospitals' financial performance during the first two years of the COVID-19 public health emergency. Researchers assessed 4,423 short-term acute care and critical access hospitals. 

Eighty percent of the hospitals received public health emergency funds during 2020 and 2021. Seventy-five percent had a positive net operating income during this period. For more than 3,000 hospitals, financial performance improved post-public health emergency; these facilities saw a median net operating income improvement of $5.3 million. 

Median operating margins reached an all-time high of 6.5 percent between 2020 and 2021, compared with 2.8 percent margins pre-2020 according to the study. Hospitals saw a median  $1.9 million increase in net operating income during this time period. 

However, 16 percent of hospitals experienced new financial distress despite receiving public health emergency funding. Nearly one-fifth of the hospitals were located in a census tract with more than 20 percent Hispanic residents; these facilities were more likely to experience financial distress even after receiving federal funds. A high concentration of Hispanic residents was the only independent variable associated with financial distress after receipt of public health emergency funding, according to the study. 

And not all funds were distributed equally, the study pointed out. Hospitals with uncompensated care that represented 10 percent or more of their operating expenses in 2019 were less likely to receive COVID-19 funding than those that reported no uncompensated care burden. 

Highly urban hospitals averaged $4.8 million more in COVID-19 funding than rural hospitals, and health system-affiliated hospitals received $1.2 million less than unaffiliated hospitals. For-profit hospitals received $5.4 million less than nor-for-profit hospitals, but still were not in financial distress during the emergency, according to the study.

Some relief funds went to hospitals that did not need them while others received too much, the study's authors noted in their discussion. This led some hospitals to hit peak operating margins rather than restoring to pre-pandemic levels. 

"It should be underscored that policy makers were required to act quickly to direct COVID-19 PHE funding; however, based on the COVID-19 lessons, it will be important to consider alternative ways of allocating scarce public dollars to support our nation's health system in crisis," the authors wrote. "To that end, policy makers should ensure they have the necessary data to estimate the effects and to proactively build models to simulate relief payments and their effects on hospital finances, which could be used to better inform decision-making regarding the allocation of emergency aid."


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