OHSU Expects COVID-19 Financial Losses
Oregon Health & Science University predicts it will drop deeply into the red in the next few months if it is swamped by COVID-19 patients.
Revenues in the last several weeks sagged as the hospital moved to free up capacity to handle an expected inflow of COVID-19 patients and increase social distancing, the hospital’s chief financial officer, Lawrence Furnstahl, told the OHSU board of directors on Friday.
Upon his recommendation, the board unanimously approved a request for OHSU to secure a $150 million line of credit from US Bank as a backstop for OHSU’s cash needs in coming months.
OHSU doesn’t expect to need to draw on the proposed bank money, but it would be “prudent” to secure the line, given the instability in credit markets and the global recession, Furnstahl said.
The financial impacts of COVID-19 or a related global recession on OHSU are hard to predict, Furnstahl said. OHSU has committed to keeping a “full workforce with full pay and benefits, regardless how and when operations and schedules are modified, through June 30.”
Assuming there are no special government or insurance bailouts for the hospital, patient revenues now through June 30, the end of OHSU’s fiscal year, will drop by a quarter, while expenses will drop by 7 percent, partly due to the reduced need for certain drugs and medical supplies, he forecast. In that scenario, the hospital system will rack up an operating loss of $38 million per month, instead of the monthly operating profit of $11 million forecast before the virus hit, he estimated.
At that rate, OHSU could burn through $124 million in cash from mid-March to the end of June, he said.
But the hospital has deep financial reserves, he stressed. It has $1 billion in a mix of cash, bonds and stocks, he said. The system’s foundation has another $1.1 billion in cash, stocks and bonds and has “a considerable amount of liquidity should the foundation need to make any withdrawals over the next few months,” he said in a report shared with the board.
With regard to operating expenses, prior to the COVID-19 outbreak, OHSU had already been taking steps to curb personnel costs, especially hiring, because expenses were running ahead of budget. Under this regimen, OHSU had been giving hiring priority to direct patient care, grant-funded jobs and what it called “essential operations.” Now, with the COVID-19 crisis, Furnstahl wrote, “every hire and expenditure required for COVID-19 response must go forward, while every hire and expenditure not required for COVID-19 should be deferred.”
OHSU is also postponing a raft of administrative, construction and technology upgrades as it awaits a rising number of COVID-19 patients, he said.
“The depth and length of the recession – as well as its impact on OHSU and Oregon more generally – will depend on the course of the pandemic and the effectiveness of (government) monetary and fiscal policy responses,” he wrote. “Putting people and COVID-19 response first, while being extremely prudent in all other expenditures, is especially important now,” he wrote in the report.
Some Federal Aid May Be Coming
OHSU and other front-line hospitals around the nation may get some extra financial help from the federal government.
The $2 trillion aid package working its way through Congress has $100 billion allocated to help hospitals deal with COVID-19. It’s unclear how much of that might reach OHSU.
The financial and operational ramifications of COVID-19 for nonprofit hospitals such as OHSU continue to come into sharper focus as more experts scrutinize them. Furnstahl said a Goldman Sachs summary of the effects include a reduction of elective surgeries; a greater volume of patients covered by Medicare; the high cost of scarce resources such as masks, drugs and health care employees; hospitals ensuring they have access to enough cash “to sustain a multi-month cash flow drain;” and the delay of planned financing of projects.
The Moody’s debt rating service earlier in March downgraded the outlook for the nonprofit hospital sector to “negative.”
In its report, Moody’s warned that even after the pandemic is contained, “ripple and lingering effects to the economy will … drive lower cash flow.” Effects include “a reduction in the value of the hospitals’ (stock) investment portfolios and potential rising unemployment or widespread layoffs that result in the loss of health benefits (to workers).”
You can reach Christian Wihtol at [email protected].
Mar 26 2020