COVID-19 Finance Healthcare Hospitals Learning - Function

Hospitals are busier than ever — and going out of business


At various points over the previous couple of weeks, news reports have told stories of booming hospitals: emergency departments overwhelmed by patients, imminent shortages of both ICU beds and ventilators, and even the requirement to create makeshift field hospitals to accommodate extra patients. At the identical time, they also showed how hospitals are furloughing staff and cutting salaries and retirement benefits.

And Congress has allocated $100 billion to bail out hospitals in financial trouble.

How can hospitals be so busy and still be losing the most money?

If you’ll have walked through some hospitals at various points over a previous couple of months, you’d have seen parts of the solution. While large hospitals typically run near capacity, many are largely empty. Hospitals preparing for the surge of Covid-19 patients unfolded beds by decreasing or canceling elective procedures and admissions. Those recovering from the primary wave are still looking ahead to non-COVID-19 patients to come back. Expenses have gone up as hospitals redeployed staff, repurposed beds to make additional ICU capacity, paid overtime, and acquired needed supplies at a higher cost.

But an excellent more important reason that hospitals are currently running within the red is due to how they’re paid. Hospital margins — what quantity they create or lose — vary dramatically across different types of care. Procedural services like hip and knee replacements, colonoscopies, and radiology tests are the cash cows for hospitals, while they reach or lose money on non-procedural admissions, like those for pneumonia or psychiatric conditions. Hospitals often lose money when a patient incorporates a prolonged ICU stay due to the high expense of providing medical aid.


So the profitable procedures and radiology tests subsidize the unprofitable care, and its style of works goes into the top.

Except when it doesn’t, like during a viral pandemic when hospitals should cancel all the lucrative services, pivot almost exclusively to unprofitable treatment, and supply selected patients with weeks of critical care. it’s no surprise that hospitals are running massive financial deficits. In every respect, the pandemic has exposed the discrepancy in how hospitals are procured doing procedures compared to providing non-procedural medical aid.

This policy approach was problematic even before the pandemic struck. It encourages the hospitals to perform potentially low-value but well-reimbursed procedures with little benefit and unnecessary risk to patients. From a hospital accountant’s perspective, it’s much better to take a position in highly reimbursed but minimally beneficial technologies like proton beam therapy than ineffective and evidence-based cancer treatments. Hospitals in financial trouble may reduce critical but relatively poorly reimbursed facilities such as emergency departments and psychiatric wards, with predictable adverse effects on the community and psychological state.

Since reimbursement discrepancies are reflected within the salaries of clinicians who provide procedural versus nonprocedural care, they distort the physician market and harm public health. Areas of the country with higher numbers of medical care physicians have better survival, but our best and brightest medical students are understandably less likely to enter this relatively low-paying field.


Here are three things we can do about this problem:

First, we can fix imbalances in Medicare’s reimbursement schedule. additionally, to being the biggest payer within the country, Medicare’s prices are often the starting point for negotiations between hospitals and insurers, meaning that distorted Medicare prices echo throughout the health system. Second, new procedures often command high prices after they are first introduced, then again their relative prices fail to fall when more efficient ones are developed. Better mechanisms must be created to continuously update relative prices of various procedures and kinds of hospitalizations to forestall these imbalances. Third, we must always bolster efforts to develop, refine, and test new payment models, such as accountable care organizations, that provide specific incentives for cost-effective and clinically appropriate care.

It shouldn’t have taken a scourge, with hospitals overwhelmed yet underwater, for our country to reform how hospitals are procured the services they supply. We hope that after the Covid-19 crisis is over, one amongst its long-lasting effects is going to be a critical re-evaluation of how we purchase medical care, improving our nation’s health in the long run.

Zahir Kanjee is a physician at Beth Israel Deaconess Medical Center and instructor in medicine at Harvard Medical School. Ateev Mehrotra is a physician at Beth Israel Deaconess Medical Center and an associate professor of health care policy and medicine in the Department of Health Care Policy at Harvard Medical School. Bruce Landon is a physician at Beth Israel Deaconess Medical Center and professor of medicine in the Department of Health Care Policy at Harvard Medical School.

A version of this story was originally published on

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