N.J. hospitals are among the busiest places in the country right now. So, why are they going broke?

Posted May 06, 2020

Shareef Elnahal knows exactly who is in his hospital.

As another month of the coronavirus pandemic ground to a close last week, about 140 beds at University Hospital in Newark are filled with patients who have either tested positive for COVID-19 disease or are awaiting test results, said Elnahal, the hospital’s president and CEO. Many are fighting for their lives.

But Elnahal also knows exactly who isn’t in his hospital.

Because of a state order banning elective surgeries, no one is getting knee replacements. Few are coming in for routine tests. The dental and ophthalmology clinics are quiet.

Even the cardiac and stroke units, ready to accept emergency patients, are relatively empty — probably because people in distress are afraid to come to the hospital for help.

“We’re not seeing the emergencies we usually see,” Elnahal said. “We’ve seen a 40% reduction in heart attacks and strokes.”

For University Hospital, the lack of patients means a lack of cash. The state’s only public hospital, which was in the black earlier this year, is now hemorrhaging $7.5 million a month due to the crisis. It expects to be a staggering $50 million to $70 million in the red — and in need of a major public bailout — by the end of the calendar year, Elnahal said.

Other hospitals around New Jersey tell the same ironic story. While they are struggling to treat a flood of coronavirus patients in one of the epicenters of the worldwide pandemic, they are also facing a deepening financial crisis because they don’t have enough regular patients.

Coronavirus has exposed one of the stark truths of hospital economics: Emergency patients don’t really pay the bills. It’s the elective procedures — the joint replacements, the plastic surgeries, the pacemaker implementations — covered by health insurance that are the real moneymakers for hospitals.

When Gov. Phil Murphy issued an order banning all elective medical and dental procedures starting on March 27, the bottom fell out of many hospital budgets. That loss of that revenue, coupled with the need to quickly spend cash on more masks, gowns, face shields, respirators and staff to ramp up for coronavirus patients, left hospitals reeling.

Now, with the number of hospitalized coronavirus patients continuing to level off or decline, New Jersey hospitals are facing empty coffers.

“We don’t have specific impact numbers at this time, but hospitals have sustained a substantial financial impact as they’ve responded to the COVID-19 emergency. It’s a combination of a loss in revenue due to the suspension of services like elective procedures, along with steep increases in expenses,” said Kerry McKean Kelly, a spokeswoman for the New Jersey Hospital Association, which represents about 400 health care organizations around the state.

The association, which includes more than 70 acute care hospitals, is not sure how this will all play out when the pandemic is over. Will smaller hospitals close? Will there be layoffs? Will hospitals scale back services? Will a government bailout fix everything?

“COVID-19 isn’t through with New Jersey yet and we’re still focused on the response, but the lingering financial impact on our health care system will be significant,” Kelly said.

The pandemic is also an opportunity for New Jersey to take a hard look at how its hospitals are funded and whether the current system — with its complex mix of health insurance payments, charity care and federal and state funding — is broken.

“We have to think very differently about public hospital funding,” said Elnahal, the former state health commissioner now heading University Hospital in Newark. “This is an asset that can’t close.”

Some hospitals have already started layoffs and furloughs. Shore Medical Center, which serves Atlantic and Cape May counties, asked its staff last month for voluntary layoffs, though a spokesman said no doctors or nurses would be let go. Hospital officials said they need to reduce staff and cut pay to top executives because Shore Medical lost too much money on canceled elective surgeries while also having to invest in personal protective equipment for COVID-19.

AtlantiCare, a chain of Jersey Shore hospitals, urgent care centers and medical offices, also furloughed or reduced hours for some workers and asked executives to take a 25% “voluntary salary reduction.” Also in South Jersey, Mullica Hill-based Inspira Health said it has furloughed 219 employees.

Executives at other hospitals, including the Hackensack Meridian Health chain and University Hospital in Newark, said they can’t consider layoffs as a way to save money when the need for staff at their hospitals is so great as they work through the pandemic.

Government officials have acknowledged we can’t have hospitals closing in the middle of a health crisis. The federal government had sent about $40 billion in emergency funding to hospitals around the country as of last week.

But New Jersey hospitals say they have been shortchanged because the formula to split up the money to states didn’t take into account the high number of coronavirus patients they are treating compared to the rest of the country.

“Because of a screwy, utterly unfair formula, the first allocation of CARES Act funding was a bad joke for our state," said Rep. Bill Pascrell Jr., D-9th Dist.

New Jersey hospitals received about 3% of the first wave of $30 billion distributed by the federal government under the CARES Act and 2% of the $9 billion awarded in the second wave by the U.S. Department of Health and Human Services.

Because the federal government used Medicare reimbursement data to quickly calculate how much each hospital should get, New Jersey hospitals got no credit for the high number of coronavirus patients it was treating.

New Jersey averaged about $18,000 per COVID-19 case in the early rounds of federal bailout money, while Minnesota, Nebraska and Montana, where cases are low, each received more than $300,000 per case, according to Kaiser Health News.

The third round of federal hospital money, which was announced Friday, seemed to be more fairly distributed, according to some New Jersey hospital officials. The $12 billion will be split among 395 hospitals that have had at least 100 COVID-19 cases. That includes 53 hospitals in New Jersey that will get a total of $1.7 billion.

But some smaller New Jersey hospitals, especially those in South Jersey, were left out of the latest round of funding because they’ve had few COVID-19 patients.

Shore Medical Center and Cape Regional Medical Center urged supporters to call Sen. Cory Booker and Sen. Robert Menendez, both D-N.J., to push for the federal government to rethink the funding rules.

“Fortunately, the number of diagnosed cases in Atlantic and Cape May counties have been relatively low so far. But whether it was one patient treated or 100, Shore and Cape Regional embraced the same risk as every other hospital. Every patient’s life and every clinician who cared for them should be counted and valued the same as those in other hospitals in the state and across the country,” hospital officials said in a statement.

Wall Street analysts have been closely tracking the health of local hospitals and hospital chains.

Moody’s, the bond rating agency, changed its outlook on Holy Name Medical Center in Teaneck from stable to negative last month, citing the hard hit the Bergen County hospital has taken as one of the early coronavirus hotspots.

“Once the immediate crisis is over, uncertainty will remain regarding the hospital’s ability to ramp up volumes and staffing given the highly competitive service area,” the Moody’s report said. But Moody’s stopped short of downgrading Holy Name’s Baa2 bond rating, which helps determine how costly it will be for the hospital to borrow money.

Moody’s also kept its negative outlook and Baa2 bond rating for St. Joseph’s Healthcare System, which has hospitals in Paterson and Wayne overseen by the Catholic Sisters of Charity of Saint Elizabeth. Between the coronavirus outbreak the uncertain global economy, the long-term outlook for all of health care seems hazy, the report said.

“The combined credit effects of these developments are unprecedented,” the report said.

Neither Holy Name Medical Center nor St. Joseph’s Healthcare System responded to requests to comment on their financial health.

When the Murphy administration allows New Jersey hospitals to begin doing elective surgeries and procedures again, hospitals will get a bump in revenue. And federal stimulus money will help make up for the some of the losses. But many will still be in the red, said Jennifer Barr, a Moody’s analyst who tracks Holy Name Medical Center and RWJ Barnabas Health in New Jersey.

“It’s unlikely that hospitals will be made whole for lost revenue,” Barr said.

However, it’s important to remember heading into this crisis most hospitals in New Jersey, a high-income state with a large number of insured patients, were “at a good starting point" when the pandemic began, Barr said.

Most large hospital chains have millions in reserve and investments to help them weather financial storms. It’s the smaller community hospitals and rural health care centers that are the most likely to face long-term problems or possible closure.

“Some hospitals are very busy, others in the country are empty,” said Lisa Goldstein, a lead health care analyst for Moody’s. “Some very well may be on the financial bubble."

Other states that are weeks ahead of New Jersey in their recovery from their coronavirus outbreaks, including Washington state and Oregon, had similar concerns about the financial health of their hospitals. But there have been relatively few layoffs or closures, so far.

Both Oregon and Washington’s governors recently began allowing some elective procedures at hospitals. Hospital officials say it is a relief to begin treating more patients, including patients who have been waiting for surgery. But, at the same time, they are anticipating a potential second wave of coronavirus patients.

“As we prepare for a potential COVID-19 surge this fall, we hope to begin offering additional medical services soon, such as cancer screenings. Patients rely on this care for their wellbeing, and we want to be there for our communities,” said Cassie Sauer, president and CEO of the Washington State Hospital Association.

In New Jersey, Murphy has not said when he will begin allowing elective surgeries and routine procedures at hospitals and medical offices again. Elnahal, the head of University Hospital in Newark and one of the hospital CEOs participating in daily meetings with state officials, said it is a regular topic of conversation.

It’s possible there will be a gradual return to normal hospital operations, rather than allowing all of the New Jersey’s hospitals to begin allowing all surgical procedures again all at once.

“It’s important to know there is a spectrum of procedures,” Elnahal said. “I trust that decision will be made at the right time. ... When we’re all comfortable, we’ll turn it on again.”

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