Financial Impact of COVID on U.S. Hospitals: Is Transformation the Key to Survival?

U.S. Health Systems

A detached observer could be forgiven for thinking that these are boom times for the healthcare industry in the United States. After all, many U.S. hospitals were never busier than they were in 2020 and into early 2021 as pandemic-related illness stretched them to capacity and beyond.

But a report released in March by the American Hospital Association (AHA) paints a very different picture, noting that even in a best-case scenario nearly 40% of hospitals would operate in the red in 2021. And of course our current situation of the Delta variant rearing its ugly head is not a best-case scenario.

A Harvard Business Review article confirms that the COVID-19 pandemic magnified existing structural deficiencies in our hospital system, as many facilities suffered revenue losses even when filled to capacity. HBR notes: “In no well-working market should demand exceed supply while revenue falls.”

On the face of it, the causes are a triple whammy for hospitals: Expenses continue to rise, revenues continue to decline, and economic conditions contribute to an increasing number of uninsured patients. And even all that omits the cost burden of overtime and bringing on additional staff to meet surging demand.

Moreover, the overall financial model for U.S. hospitals is dependent on providing lucrative services with high reimbursement rates, typically prioritized over general community health issues. The pandemic not only flooded hospitals with lower-reimbursement COVID cases, it meant the postponement of many of those bigger-ticket, sometimes elective, procedures.

There’s more to all this than dollar signs, however. Those same financial issues have a direct impact on hospitals’ core mission of caring for the sick and injured in their communities. The AHA report notes an especially significant impact in rural areas.

What are the solutions? Certainly, technology will play a large role. On the surface, things like telemedicine visits and increased remote monitoring, born of necessity in the pandemic, will be more widely adopted as regular ways of doing business, offering both greater convenience for the patient and reduced costs for the facility. This medical virtualization further reduces the need for high-cost facilities and increases competition.

Technology also drives the next, larger step: the “hospital-at-home” (alternately “hospital to home”) model. Advanced sensors and monitors, and a flexible workforce of care providers, can now combine to provide hospital care in a patient’s home, up to and including intensive-care-level treatment. This has not only the obvious benefit of reducing costs, but results in a better patient experience and, not coincidentally, better outcomes overall.

The HBR article points to technology as a solution to allow hospitals to pool resources as well, for example referral systems that would direct patients away from overcrowded hospitals, pointing them towards facilities better equipped to care for them in that moment. The banking industry offers an example here wherein institutions compete with one other but are still able to pool resources in times of community need.

Reform at the government level will be needed to help hospitals remain viable also. Current payment policies certainly have aided in fostering the current situation. Payment reform that increases competition and incentivizes healthcare facilities to better meet patient needs would be a worthy goal.

Healthcare is far from the only industry to have had structural flaws exposed and magnified by the COVID-19 pandemic. Many other businesses have had to discover new ways of doing things in order to survive, and some did not weather the storm. But in no other sphere is there more at stake in getting it right. The nation’s hospitals need to be better equipped not only in the event of another pandemic, but to better and more efficiently serve their communities in normal times, whatever that might look like in the future.


Operation Efficiency Model CTA