For Iowa hospitals, the bills are on their way, as pandemic costs deal a major blow to budgets

Even as the nation’s hospitals and health care workers have become the focal point of the novel coronavirus pandemic, the industry itself has been dealt a major blow that has resulted in historic losses.

Without further aid from federal or state government, some industry experts worry about the long-term recovery of hospitals in Iowa — especially those that already were in poor financial standing before COVID-19 hit.

“It’s difficult to predict, but we’re relatively certain we will lose a hospital in Iowa because they don’t have capacity to withstand downturn in revenue,” Marty Guthmiller, chief executive of the Orange City Area Health System and chairman of the Iowa Hospital Association board, said during a June virtual news conference.

Hospitals across the United States faced an unprecedented challenge as the coronavirus pandemic took hold in March.

Expenses continued to remain high throughout the pandemic as doctors and other staff shifted operations to care for those infected by the virus. In addition, hospital officials scrambled to increase supplies of personal protective gear, ventilators and other medical supplies at a time when the demand was high.

To reduce transmission of the virus, hospital administrators shut down elective and otherwise non-emergency surgeries, which are some of the most profitable services for a facility. This created a sharp drop in revenue.

“The whole system had been organized and redesigned to maximize elective surgeries because that paid the bills,” explained Tim Charles, president and CEO of Mercy Medical Center in Cedar Rapids.

Hospitals also experienced an unprecedented low patient volume, and not just because officials suspended elective procedures. People avoided medical services, even for issues such as heart attacks and strokes.

UnityPoint Health-St. Luke’s Hospital in Cedar Rapids experienced a 13 percent decline in patient volume in March, and a 36 percent drop in April compared to the year before. Clinic visits declined as much as

39 percent “as patients postponed physicals, immunizations or delayed going to the doctor for illnesses or any injuries,” CEO Michelle Niermann said.

At Mercy Medical Center, hospital administrators reported as much as a 75 percent drop in patients by early June. Its clinics operated at about

50 percent capacity.

Across the United States, health care spending dropped 16.5 percent in the first quarter of 2020, according to the U.S. Department of Commerce.

As a result, COVID-19 created immediate and significant damage to hospital margins and “great uncertainty about the path forward toward financial stability,” according to a nationwide analysis by research firm Kaufman Hall of hospitals’ financial health, a report requested by the American Hospital Association in early summer.

“When you talk to hospital CEOs, the first thing they want to do is project to the public the hospital is a safe place to be,” said Kirk Norris, president and CEO of the Iowa Hospital Association. “At same time, they’ll tell you privately they are very concerned about 2021 and their ability to financially weather things.”

The University of Iowa Hospitals and Clinics, the state’s largest hospital, expected to see $50 million in coronavirus-related losses through June 30, the end of its current budget year, CEO Suresh Gunasekaran said.

In May, hospital administrators had announced a $100 million hit to its budget. However, UIHC was able to rebound after a better-than-expected May and June as the state reopened and the hospital saw a return to normal patient volumes, Gunasekaran said.

Still, the impact from the pandemic was enough to prompt UIHC administrators to budget for an operating margin below 2 percent for the 2021 fiscal year.

Last year’s operating margin was

4 percent, and UIHC margins historically have hovered between 3 percent and 5 percent. The last time UIHC’s operating margin was below 2 percent was during the 2008 recession.

“We are anticipating that the rest of the fiscal year we won’t go unscathed, meaning we think that there will be changing dynamics in Iowa as a result of COVID-19,” Gunasekaran said. “We think that there is some level of COVID-19 resurgence that’s likely to come about.”

UnityPoint Health-Cedar Rapids reported a 34 percent decrease in net patient revenue for March, April and May, though its impact was offset by the $13 million the regional health system received under the federal Coronavirus Aid, Relief and Economic Security, or CARES, Act.

“We continue to revisit our financial forecast and generally predict a return to break-even by year-end,” St. Luke’s Niermann said. “In order to continue to make the investments we need to make in facilities, technology and people, we’ll need to strengthen that performance significantly in 2021 and beyond.

“What remains to be seen is the resurgence of the virus and the resurgence of health service utilization,” she added.

The hospital financial analysis by Kaufman Hall found that operating margins nationwide dropped significantly between the first and second quarters of 2020.

The analysis predicted median operating margins for all U.S. hospitals would be negative 3 percent for the second quarter. Without funding from the CARES Act passed by Congress in late March, operating margins would have dropped to negative 15 percent, the report stated.

The financial impact of the novel coronavirus pandemic is expected to be ongoing. By late July, new COVID-19 cases across Iowa and the rest of the country were on the rise once again.

Hospitals also will feel the effects of the country’s economic downturn in the coming months, UIHC’s Gunasekaran said.

Hospitals are paid a higher reimbursement from individuals who have commercial insurance than those who receive their health care through Medicare or Medicaid.

“So one challenge is if less Iowans are employed and don’t get their insurance through their job, that hurts us economically,” Gunasekaran said.

“The second piece is when economic times are tight, patients as a whole choose to serve their budget and not receive as much health care so they don’t have to pay as much out of pocket.”

As a result, hospital officials and other advocates — including Norris with the Iowa Hospital Association — are looking to the Medicare Accelerated and Advance Payments Program for an assist.

The initiative from Congress offered advanced Medicare payments to health care providers facing a severe economic threat because of COVID-19. It provided more than

$100 billion in payments to health care providers nationwide.

About $1 billion of that funding went to 77 Iowa medical organizations and institutions, according to the Centers for Medicare & Medicaid Services. UIHC did not apply for those accelerated payments.

Congress suspended the program

in late April, and providers must begin repaying those funds within

120 days by forgoing payments from Medicare.

That approaching deadline represents “a doomsday scenario for struggling hospitals, many of which may be on the brink of financial collapse, the Federation of American Hospitals said in a recent policy brief.

Iowa officials are calling on members of Congress to expand the program or forgive the debt hospitals are facing.

“That forgiveness piece for the Medicare advanced payment program could be hugely impactful,” said Charles, CEO of Mercy Medical in Cedar Rapids.

In addition to more continuous funding provided to hospitals, Norris also called on state officials to enact more assertive public health measures to prevent another spike of the novel coronavirus and prevent further strain on these institutions.

“There needs to be more government involvement and direction given to public health issues like wearing masks and enforcing social distancing,” Norris said.

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