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New report from UC Berkeley’s Petris Center shows California’s smaller and rural hospitals struggling during pandemic

A new report from the Nicholas C. Petris Center on Healthcare Markets and Consumer Welfare at UC Berkeley estimates Coronavirus Aid, Relief, and Economic Security (CARES) Act payments covered only 24% of the revenue loss experience by hospitals in California during the COVID-19 pandemic. It also determined that larger and more urban hospitals and those that had the highest private insurance share received the most funds.

In March 2020, California Governor Gavin Newsom issued an executive order that prevented hospitals from performing elective procedures to free capacity for a possible surge of COVID-19 patients.

Researchers have estimated that outpatient services in California dropped by more than 50% and emergency department visits dropped by 40-60% in the 60-day period after the state’s shelter-in-place order went into effect on March 19, 2020. Across the board, hospital operating margins in March 2020 were down 13 percentage points from the same time period in 2019.

The CARES Act, passed by Congress in March 2020, is a more than $2 trillion economic relief package, which distributed $175 billion to hospitals and healthcare providers across the country, including $4.8 billion in California. This healthcare provider funding was based on total net patient revenue.

The Petris Center’s analysis showed that the size of CARES payments per adjusted patient day varied significantly, and that this variance was correlated with a hospital’s share of patient revenue from private insurers (as opposed to public insurance systems such as Medicaid and Medicare) and the hospital market concentration. Concentrated markets are associated with less competition between systems and higher health care prices.

The researchers speculate that this could be due to hospitals in highly concentrated markets being able to extract higher prices from private insurers, which would lead to higher patient revenue and larger CARES Act payments.

Previous research has shown that hospitals with more market power can negotiate higher reimbursement rates from private insurers.

“The CARES Act is helping California’s hospitals, especially the large hospital and hospital systems,” says lead author Richard M. Scheffler, professor at UC Berkeley School’s of Public Health and Goldman School of Public Policy.

But unless the CARES formula is changed, smaller hospitals may be in trouble. “Smaller and rural hospitals without any significant financial reserves are at risk of closing or being acquired,” Scheffler says. “The formula used to allocate future funds needs to be adjusted accordingly.”