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The Financial Impact of COVID-19 and How Hospitals Are Modeling It

April 13, 2020

Due to the complexity and pervasiveness of the COVID-19 virus, hospitals around the world are facing significant obstacles in providing care. On top of scarce resources and decreased capacity, providers are facing unforeseen financial challenges as a result of COVID-19.

To provide hospitals with visibility into that impact, data scientists at Strata Decision Technology issued this report on the financial impact of COVID-19. Using data from 32 U.S. health systems to model the impact in the first 30 days, our researchers found that COVID-19 will take a significant toll on hospitals across the country.

  1. How is COVID-19 affecting U.S. hospitals?

COVID-19 is challenging our nation’s hospitals. Strata’s data scientists anticipate that 75% of health systems will see negative margins within the first 30 days.

They also predict that 97% of health systems will lose an average of $2,800 per COVID-19 case. Some health systems will lose as much as $8,000 to $10,000 per case.

These increased costs for COVID-19 patients are the result of a number of cost drivers.

  1. What are the primary cost drivers of COVID-19?

Due in part to the complexity of these cases, costs for COVID-19 cases are significantly higher than costs for other conditions and complications, even those mentioned as similar or in the diagnosis related group (DRG) mentioned in the report.

Some cost drivers include labor, supplies, drugs, medical equipment, and other considerations, like the deferment of elective inpatient procedures.

Labor
The complexity of COVID-19 cases has resulted in a decline in nurse staffing ratios, as nurses and staff are required to help validate the fit of each other’s personal protective equipment (PPE). Increased labor needs will have an impact on hospitals this year.

Supplies, Drugs, Medical Equipment
Costs are also higher due to expanded cleaning regimens, PPE shortages, more frequent X-rays and CT scans, and overall higher supply and drug costs. Overall, it takes longer and requires more to care for these patients than even the proxy DRGs selected.

Other Considerations
It isn’t just the costs associated with COVID-19 cases themselves that are impacting hospitals. To make room for more COVID-19 patients, most hospitals are deferring their “elective” inpatient services.

Deferral of elective procedures is a critical step to free up capacity, supplies, and resources for the increase in COVID-19 patients. However, this step will also result in an additional margin loss.

For many hospitals, elective cases are their primary source of revenue. Researchers estimate that 90% of hospitals that cancel all elective procedures will shortly begin to experience negative profit margins from COVID-19 cases.

  1. How can I learn more?

Strata’s data scientists leveraged cost data from 32 U.S. health systems to model the 30-day impact of COVID-19. Our team created this report to help advocate for a higher reimbursement rate for hospitals in the federal stimulus package approved in the Senate last month.

To continue to support hospitals during this time, we are providing information, insights, and resources from across our client base of 200+ health systems and our StrataSphere data science network of 80+ health systems. We hope these resources can help organizations across the country to better plan, analyze, and perform with agility and confidence.

  1. What resources can I use today?

Strata is helping hospitals understand the impact to their organization in a few additional ways:

  • We are providing more information on the cost drivers of COVID-19
    Learn more about our COVID-19 Cost & Recovery Model here.
  • We are offering to run our proxy COVID-19 model on your data.
    We want to help you to leverage your own data for insights that will help you take action. We are offering this opportunity to any client that has fully complete costing models and utilizes DRGs on all of their data. As new assumptions become available, we will also be updating our model assumptions and re-running the data.
  • We are offering organizations access to our COVID-19 dashboard.
    Driven from encounter data sets, our Starter Set COVID-19 dashboard allows you to model revenue and direct costs from your cost data. Filter by COVID or elective cases to see total charges per case, net revenue per case, direct cost per case, and other important financial metrics.
  • And finally, we are compiling helpful COVID-19 resources for you and your team.
    As members of the COVID-19 Healthcare Coalition, we at Strata Decision Technology are committed to helping you and your team stay informed. We will continue to update this page with resources and best practices for tackling planning, analytics and performance challenges resulting from the COVID-19 outbreak.