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Federal aid heading to Iowa hospitals will cover only half of COVID-19 losses

Iowa hospitals received $190.3 million in CARES Act relief fund payments in April and were expecting as much as $360 million more in a second round of federal relief aid underway now, interviews and documents shared with IowaWatch show.

Some of the state’s 118 hospitals also received in April advance Medicare payments worth $900 million in an accelerated payment program that requires the hospitals to pay back those funds with future Medicare billings. But the hospitals will have to repay the balance, potentially with interest, if those billings don’t cover the whole amount that was advanced.

The cash helps, especially at small, rural access care hospitals of 25 or fewer beds that have been stretched thin during the COVID-19 pandemic, hospital and industry leaders said in IowaWatch interviews. But it won’t bring them to the break-even point, even as the hospitals have resumed a major source of their income with non-emergency and clinical procedures, those interviewed said.

That’s because a lot of Iowa hospitals operated in the red before the pandemic hit. An IowaWatch review of certified financial data for each Iowa hospital showed that 44 of the 118 ended the last fiscal year for which they reported with a negative balance. Most are in small, rural regions but a few are in urban areas.

Kirk Norris, CEO and president of the Iowa Hospital Association, said modeling his association has done shows that Iowa hospitals could lose as much as $1 billion by the end of June or beginning of July because of the virus. The relief dollars from the CARES Act would make up only half the loss.

“We have a pretty good handle on what happened in March and, basically, half of their revenues evaporated,” Norris said in an interview. April wasn’t much better, IowaWatch interviews with hospital administrators showed, because state restrictions ordered by Gov. Kim Reynolds in much of March, all of April and the first part of May prohibited the hospitals from offering non-emergency surgeries and radiology procedures or other clinical visits.

Norris said industry leaders in Iowa feared at the start of this year that 10 to 15 small Iowa hospitals could be in bad enough financial condition that remaining open in the next three to five years would be difficult. “Now you have COVID, which has made their circumstances exponentially worse,” he said.

Ideally, hospitals would have enough money in reserve to handle an emergency-driven, dramatic shift in business, a nationally recognized rural health researcher at the University of Iowa College of Public Health said. “On a temporary basis, which is what we hope, you have cash reserve, you have lines of credit,” Keith Mueller, Gerhard Hartman Professor and Head of Health Management and Policy, said.

Most small rural hospitals, however, would not have as much cash on hand as larger ones, nor a strong line of credit, Mueller said. “You don’t have the same profile financially as some of the larger institutions,” he said.

Adding to the problem: Hospital administrators have not been able to predict when revenue will pick up again. Mueller said hospitals have been buying time to see how much federal assistance helps. But assistance isn’t covering all of the expenses, especially for hospitals treating COVID-19 patients, he said.

The accelerated Medicare payments will advance to participating hospitals some needed cash to cover three months of anticipated billings the hospitals would send to that federal insurance program. Critical access hospitals may seek up to 125% of their Medicare payment for a six-month period, rules for the program state.

Hospitals taking accelerated payments will, in return, credit Medicare until the advanced money is covered but must start paying back the funds 120 days after receiving them.

However, the arrangement has a kicker that could add to hospitals’ financial strain if they do not have enough Medicare billings to cover the advance payments: They would have to pay 10.25% interest on the balance owed after a certain amount of time has passed:

Up to a year after receiving funds for critical access hospitals — which covers small, rural hospitals — inpatient acute care hospitals, cancer hospitals and children’s hospitals.

Ninety days after the 120-day pay-back period ends for other healthcare providers.

The Center for Medicare and Medicaid Services is telling hospitals the U.S. Treasury Department set the interest rate and that it cannot waive or change the rate.

The largest total Health and Human Services payouts from two programs — the CARES Act and the Paycheck Protection Program and Health Care Enhancement Act — as of May 13 were a little more than $34.7 million to University of Iowa Hospitals and Clinics, HHS data IowaWatch reviewed show. Catholic Health Initiatives, in Des Moines and other locations in western Iowa, was next at $13.8 million. UnityPoint Health-Iowa Lutheran Hospital, in Des Moines, was next at $13.2 million, the data showed.

CARES Act payouts were based on annualized patient revenue, thus the largest payments went to Iowa’s largest hospitals. Hospitals have collected $362.7 million of the $383.3 million distributed so far for Iowa’s rural hospitals, clinics and community health centers, the IowaWatch review of disbursements showed.

DEMAND FOR CASH, PEOPLE RESOURCES

Administrators at MercyOne Elkader Medical Center in northeast Iowa, like those at other hospitals, spent the first part of 2020 rearranging staff to deal with COVID-19. Leaders balanced demands created by the need to address a pending surge in virus cases while income-producing non-emergency surgeries and many clinical appointments were cancelled.

“Going into COVID-19, the month prior to this I was exceeding budget for this fiscal year,” Brooke Kensinger, the hospital’s CEO, said. “But everything is somewhat fragile in critical access environments due to the way that we’re paid from different payers, whether that’s Medicare or Medicaid, or Wellmark or UnitedHealthCare. And the margins that we’re making are just very, very thin, so we really have to be creative in how we staff facilities like mine.”

The hospital staffs the facility with three employed health care providers – one medical doctor and two nurse practitioners who have expanded medical training and authority to write pharmacy prescriptions – and partners with Medical Associates Clinic in Elkader, independent contractors and employment agencies. The hospital partners with Avera eEmergency in its emergency room and eHospitalist services on its inpatient floor.

The hospital avoided layoffs, furloughs and reductions in staff work time from full-time to part-time hours. Other individual hospitals in the state, including in the MercyOne and UnityPoint networks, have laid off staff, put some on furloughs and cut executives’ pay this spring.

The hospital had received $377,538 in federal relief from the CARES Act and Paycheck Protection Program and Health Care Enhancement Act payments as of May 13, HHS data showed.

Elkader’s hospital, in a county seat with 1,215 people, is better off that some rural Iowa hospitals. It showed net income of $119,875 in the fiscal year ending June 30, 2019, a hospital records database compiled by American Hospital Directory shows. The hospital’s budgets for almost all of July 1, 2015-June 30, 2019 were in the black, except for a $53,987 deficit in fiscal 2018 when the hospital made investments in staffing and operations. That was Kensinger’s first full year as hospital CEO. The deficit was smaller than any recorded by Iowa hospitals in the most recent reports.

Kensinger said she felt fortunate that the 25-bed critical access hospital she heads became part of the MercyOne system in October 2018. Hospitals in MercyOne started talking in late February about ways to respond to the pending COVID-19 outbreak and share resources, she said.

Dr. Clark Williams, the hospital’s emergency room medical director and director of MercyOne Elkader Ambulance Service, said preparing for the unknown has been stressful. “It’s kind of this sense of anticipation, waiting for it arrive without really having a full understanding of the severity. And then, I think probably the biggest stress on a day-today basis is just using all the PPEs,” he said, referring to personal protective equipment.

What usually was a routine task – walking into a room and asking patients how they feel, for example – became a time-consuming production of scrubbing and donning the gear, Williams said. Plus, hospital leaders want to make sure they had enough gear, which has been the case, thus far.

Clayton County, where Elkader exists and which has one other small hospital in Guttenberg, has had 30 positive COVID-19 cases and three deaths, data on May 18 from the Iowa Department of Public Health showed. The Guttenberg hospital has received a little less than $3.9 million in relief so far, HHS data show.

Hospital industry officials said the HHS data will be updated as the federal government sends more relief funds.

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