The Cost of Quarantine

Projecting the Financial Impact of Canceled Elective Surgery on the Nation's Hospitals

Sourav K. Bose, MD, MSc, MBA; Serena Dasani, MD, MBA; Sanford E. Roberts, MD; Chris Wirtalla, BA; Ronald P. DeMatteo, MD; Gerard M. Doherty, MD; Rachel R. Kelz, MD, MSCE, MBA

Disclosures

Annals of Surgery. 2021;273(5):844-849. 

In This Article

Abstract and Introduction

Abstract

Objective: We sought to quantify the financial impact of elective surgery cancellations in the US during COVID-19 and simulate hospitals' recovery times from a single period of surgery cessation.

Background: COVID-19 in the US resulted in cessation of elective surgery—a substantial driver of hospital revenue—and placed patients at risk and hospitals under financial stress. We sought to quantify the financial impact of elective surgery cancellations during the pandemic and simulate hospitals' recovery times.

Methods: Elective surgical cases were abstracted from the Nationwide Inpatient Sample (2016–2017). Time series were utilized to forecast March–May 2020 revenues and demand. Sensitivity analyses were conducted to calculate the time to clear backlog cases and match expected ongoing demand in the post-COVID period. Subset analyses were performed by hospital region and teaching status.

Results: National revenue loss due to major elective surgery cessation was estimated to be $22.3 billion (B). Recovery to market equilibrium was conserved across strata and influenced by pre- and post-COVID capacity utilization. Median recovery time was 12–22 months across all strata. Lower pre-COVID utilization was associated with fewer months to recovery.

Conclusions: Strategies to mitigate the predicted revenue loss of $22.3B due to major elective surgery cessation will vary with hospital-specific supply-demand equilibrium. If patient demand is slow to return, hospitals should focus on marketing of services; if hospital capacity is constrained, efficient capacity expansion may be beneficial. Finally, rural and urban nonteaching hospitals may face increased financial risk which may exacerbate care disparities.

Introduction

COVID-19 is an unprecedented shock to the US healthcare system that places patients at risk and hospitals under financial stress. Regardless of region and hospital type, elective surgeries represent a portion of comprehensive healthcare from which substantial margins are realized, accounting for up to two-thirds of hospital revenues.[1] Therefore, losses related to elective surgery cancellation may have significant impact on hospitals. Disasters including Hurricane Katrina[2] and the 2003 SARS outbreak[3,4] had profound financial impact on hospital operations. However, there is no precedent for the duration, scale, and scope of cancellations realized during COVID-19. The pandemic thus raises questions regarding the financial impact of a 3-month cessation of elective surgeries. Moreover, the resumption of procedures requires strategic considerations that account for ongoing demand and the backlog of patients who were unable to undergo surgery. It is critical to understand the impact that elective surgery cancellations will have on hospitals' financial solvency and ability to provide safe, high quality care.

To buffer associated losses and subsidize COVID-19 related expenses, the US Department of Health & Human Services will distribute $175B to healthcare systems through the CARES Act.[5] However, funding favors hospitals with the highest proportions of private insurance revenue which are typically urban for-profit institutions.[6] A consequence of this measure is to asymmetrically allocate financial risk to rural hospitals which already contend with fewer financial reserves, competition with large healthcare chains, and a high percentage of Medicare, Medicaid, and uninsured patients.[7,8] Financial failure among these hospitals during the pandemic may place underserved patients at even higher medical risk by reducing their access-to-care. It is equally critical, however, to ensure the financial solvency of urban teaching hospitals which serve high volumes of patients.

Given the variable risk facing different types of hospitals, we sought to predict the financial impact of elective surgery cancellations during the COVID-19 pandemic. We forecasted short-term hospital revenues during March–May 2020 based on hospital region and type, generated sensitivity analyses to assess the backlog of cases, and determined long-term ramp-up times to market equilibrium in which available capacity accounts for ongoing and backlog demand. These data may further inform policies to subsidize hospitals and guide managerial decision-making regarding operational capacity with the aim of keeping US hospitals open and financially solvent.

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