Killing Healthcare

Now that the initial surge in COVID-19 cases seems to be flattening, the cost in terms of lives is becoming clearer. Patients in nursing homes seem to be particularly vulnerable.

Caregivers including physicians, nurses and other bedside staff have paid a terrible price in coming down with the disease and sadly some have given their lives. As I indicated a few weeks ago, we need to become wiser in preparing for any new surge in COVID-19 or new virus which may afflict us in the future.

There is another horrible dimension to this pandemic which is only now becoming more apparent. COVID-19 has laid waste to the financial health of our healthcare system. It is killing the organizations we rely upon to care for us when we are sick. This includes integrated healthcare systems, freestanding hospitals and independent medical practices.

This financial carnage became apparent to me this week when I read Sutter Health’s “VOLUNTARY NOTICE OF EVENT RELATED TO COVID-19”. This was an eleven page disclosure to holders of its various bond issues and it paints a very concerning picture of the effects of the pandemic on Sutter’s financial status.

In this document, Sutter outlines the massive decrease in volume of all categories of patient care as well the extraordinary increase in expenses as it prepared for what could have been an overwhelming number of COVID-19 patients. As it has so far turned out, the number of people with the virus requiring hospitalization was not as great as some predicted. Hopefully, that will continue to be the case. Sutter like most health systems and hospitals had to be prepared for the worst.

This perfect storm of decrease in normal patient volume and increase in expense means that for the first quarter of 2020 ending March 30, Sutter had an operating loss of 236 million dollars. That is a staggering figure.

For the month of April, Sutter had an operating loss of 360 million dollars. That is an operating margin of negative 50.57%. These are sobering amounts for a heretofore financially strong health system. Sutter in its disclosure raised the possibility that if this trend continues it might be in violation of one or more of its bond covenants. Sutter’s disclosure statement can be found by going to the following article in the Sacramento Bee and clicking on the link in the article about Sutter: .

Sutter is not alone in its now weaken financial condition. Other large health systems are beginning to report similar situations. The Mayo Clinic, as one such example, has suffered massive financial losses as a result of this pandemic. Recovering from this magnitude of financial devastation will be difficult and many may not be able to do so without outside assistance.

I have been afraid to ask my successor at the smaller health system I spent 35 years as CEO what the financial impact of COVID-19 has been. We spent many years building our reserves for a rainy day but this virus is much more than a rainy day. I thought when I retired that I had left my organization in excellent financial shape. I worry about the long term effects of this scourge on healthcare in my community.

There has been some financial relief from the federal government and while appreciated it has not been nearly enough. There is hope that the next round of federal assistance currently being considered by the Congress will result in more financial aid but there are other damaged sectors of the economy competing for the same consideration.

California is considering how it might assist healthcare providers. Whether any significant aid is possible in light of the state’s burgeoning deficit due to COVID-19 is problematical.

I fear that if there is a second surge of this scourge later this year and it is recommended that we adopt the same closure of “elective” services, we will kill in a financial sense healthcare providers. Hopefully, we have learned lessons from the last few months which will allow a more nuanced approach to containing the virus while allowing healthcare providers to also survive.