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Local hospitals face 'a nightmare they can't wake up from'

Western New York's hospitals remain sick with the novel coronavirus, even if they have few patients with Covid-19.

And it's all because the pandemic wrecked the business model that America's hospitals have followed for years.

As Covid-19 arrived in America, hospitals spent vast sums preparing to treat patients for a fast-spreading disease with no cure.

Then hospitals lost vast sums as the patients they make money on – the ones who come in for knee replacements, colonoscopies and other procedures that could wait a little while – disappeared with a ban on elective surgeries that is only now starting to loosen.

The result? Financial losses and job cuts at Buffalo's major hospital systems and their counterparts nationwide.

It's far too early, hospital administrators say, to predict what the current crunch will mean for them in the long term. If patients return and Covid-19 somehow goes away, this could just be a temporary downturn.

But hospital industry experts say that if the pandemic continues for many months, hospitals will face a burgeoning cash crunch that could force the weakest of them into bankruptcy.

So far, the only signs are warning signs. Federal aid isn't coming close to filling the holes in hospital budgets. Epidemiologists warn of a second wave of infections in the fall. And the rainy day funds that facilities such as Erie County Medical Center set aside are running dry for a simple reason.

The current financial crisis "is more like a monsoon," said Thomas J. Quatroche, ECMC's president and CEO.

The damage done

ECMC on Friday announced plans to lay off about 70 employees and furlough others. That comes on top of furloughs at Kaleida Health, Catholic Health and some smaller local hospitals.

The job cuts stem from some ugly bottom lines:

– ECMC spent about $6 million preparing for the Covid-19 crisis and lost about $23 million in revenue. Some $11.5 million in federal aid didn't come close to bridging the gap.

– Citing the same factors, Kaleida Health lost $30 million in March and more than $60 million in April.

– Catholic Health is losing $35 million in revenue a month through canceled elective surgeries.

– Roswell Park Comprehensive Cancer Center expects to lose $63 million in revenue from patients between mid-March and mid-August, and another $15 million in research revenues.

All of Buffalo's hospital systems have received millions of dollars in federal funding under the Cares Act, the $2 trillion legislation aimed at stemming the financial impact of the pandemic. But that funding hasn't gone very far.

Roswell received $12.7 million in Cares Act funding. Candace S. Johnson, Roswell's president and CEO, said she was grateful for that, but she added: "It sort of just makes a little dent in our losses."

The same is true for hospitals nationwide; 256 hospitals nationwide have furloughed workers, according to Becker's Hospital Review. That's up from 129 a month ago.

"The financial devastation has been widespread across every hospital health system," said Bea Grause, president of the Healthcare Association of New York State.

How it happened

The financial devastation started with millions of dollars in unexpected costs at most hospitals, followed by disappearing revenues.

Every hospital began gearing up for the pandemic in late February and early March, and hospital suppliers geared up, too – by raising prices as supplies tightened.

For example, Johnson said, the paper surgical gowns that Roswell purchases in bulk used to go for 50 or 60 cents apiece. Now they cost about $12 each.

As a result, Roswell – which had to prepare to serve Covid-19 patients as well as cancer patients if the pandemic got bad enough – will end up spending $6 million on personal protective equipment in four months.

Other hospital systems ended up spending millions to prepare for the pandemic, too. Catholic Health spent $6 million to convert its St. Joseph Campus in Cheektowaga and its St. Joseph Post-Acute Center in Orchard Park into Covid-19 facilities.

"We took a whole hospital offline, including the emergency room, which totally shut down any revenue from the St. Joseph Campus," said Mark A. Sullivan, president of Catholic Health. "But most importantly, it impacted in a positive way how we deliver care for the community."

Just as soon as hospitals such as St. Joseph finished girding for the pandemic, the novel coronavirus arrived – and drove the key revenue-producing functions of local hospitals into a deep dive.

The state ban on elective surgeries hammered every one of the hospitals. At Kaleida, for example, in-patient surgeries are down nearly 55% compared with the budget projection, and outpatient surgeries are off 83%.

On top of that, many patients don't want to visit the hospital or the doctor for any reason, fearing they might come in contact with the potentially deadly virus if they do so. Kaleida's observation visits are off 55%, and lab procedures are down 70%.

"So you can see really, really depressed volumes, and with that, you know, we were foregoing a lot of revenue," said Jody A. Lomeo, Kaleida's president and CEO.

What comes next

Amid all those losses, hospital executives and their advocates in Washington look to the future and see  uncertainty.

"We do not have any solid projection, in large part because we don't know the extent of this public health emergency – how long it will go on for, if it will be like what we're seeing now, if it will get worse," said Erin O'Malley, senior director of policy at America's Essential Hospitals, which represents public facilities such as ECMC.

Such facilities operate closer to the edge financially – with tighter margins and narrower cash reserves – than large nonprofit systems such as Kaleida and Catholic Health or the for-profit hospitals in other parts of the country.

That's why industry experts say the nation's public hospitals, along with long-troubled rural facilities, appear to be in the gravest danger of financial ruin or even bankruptcy.

Many rural hospitals have struggled for years. They are beset with expensive patients such as the elderly and the uninsured, and forced to buy plenty of costly modern equipment to serve small populations.

Locally, Eastern Niagara Hospital in Lockport declared bankruptcy three months before the pandemic began and was among the first to announce furloughs. Other rural facilities nationwide will also likely face huge financial challenges in the coming months, said Alan Morgan, CEO of the National Rural Health Association.

And even as elective surgeries resume, Morgan wonders if Covid-19 will scare people out of visiting the hospital.

Even with regard to routine cancer screenings, people might think: "You know, I'm going to skip that this year," thereby further draining hospitals of income, Morgan said.

That notion points to the one thing that seems certain about health care after the pandemic. Hospital executives and experts said the increasing use of telemedicine, which started during the pandemic, will continue afterwards as hospitals hope to trim space and costs.

Beyond that, little can be predicted about the future of America's hospitals, given that the pandemic isn't over.

"I said to my team that in a lot of ways, you know, this is a nightmare that nobody can wake up from," Grause said.

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