By Anna Wilde Mathews and Melanie Evans 

HCA Healthcare Inc., one of the nation's largest hospital operators, has closed clinics and outpatient facilities and cut employees' hours. A family-medicine practice in Dallas furloughed a third of its staff. A major 48-hospital nonprofit system will put 700 workers on temporary leave.

Amid a pandemic that has sickened thousands in the U.S., many hospitals and doctors are grappling with an unexpected side effect: a financial squeeze that could deplete the health-care resources needed to meet local surges in cases and threatens the operations of some financially struggling hospitals.

Coronavirus patients are overwhelming hospitals in cities including New York, New Orleans and Detroit. As others brace for similar spikes, they are also seeing sharp drop-offs in regular doctor visits, emergency-room arrivals and the lucrative surgeries that are vital to most hospitals' bottom lines.

Hospitals are burning through cash even as nonprofit operators have seen their reserves in investment portfolios dented, spurring credit agencies to put the sector on a negative outlook -- despite an expected influx of money from a newly passed federal aid package.

"There's this waiting period for the wave to hit that a lot of hospitals aren't prepared to weather," said Chas Roades, chief executive of Gist Healthcare, a consulting firm. "Because the revenue has gone way down, they're having to cut expenses in a way that might make them less prepared when the wave does hit."

Governors in at least 17 states have halted or urged hospitals to stop elective procedures in recent weeks. Hospitals themselves have canceled surgeries to clear space for expected coronavirus patients and preserve scarce protective equipment. Many patients have decided to avoid medical settings and obey government stay-at-home orders.

Williamson, W.Va., is at risk of losing its facility, Williamson Memorial Hospital, just as the virus is expected to spread. The hospital said Monday it would close its doors in April, after revenue dropped about 45% in March. Visits to its emergency room fell by about a third, while inpatient days dropped by around two-thirds, said Gene Preston, interim chief executive of the 76-bed hospital.

The hospital is operating in bankruptcy but had secured financing intended to keep it open until a buyer took over, but the new pressure meant that money wouldn't be enough, he said.

Williamson Memorial hasn't yet treated any patients with Covid-19 -- the respiratory illness caused by the novel coronavirus -- but Mr. Preston said he is worried that if it shuts, local residents who are infected with it might delay seeking treatment or need to be transferred to a hospital farther away.

On Wednesday, Williamson Health & Wellness Center, a local clinic, said it would buy the hospital, aiming to close the deal on April 30. Donovan Beckett, chief executive of the clinic, said it hopes to keep the hospital operating without a gap, but "it's too soon to tell" if that will be possible.

Bigger operators are also under pressure. Bon Secours Mercy Health, a nonprofit with hospitals in seven states, said it would furlough 700 administrative workers and freeze wages for administrative staff. "We're facing hard decisions over the short term," Bon Secours said in a statement.

HCA Healthcare says it is seeking to avoid layoffs or furloughs, curbing expenses and putting off capital projects. It is moving idled workers to other jobs. The company will pay those who can't be redeployed 70% of their base pay for up to seven weeks.

"It's important to us to keep our workforce," said Chief Executive Sam Hazen. More than 40,000 full- and part-time workers would be eligible for paid downtime. Top executives will also see pay cut by 30% through the pandemic, the company said, and Mr. Hazen will donate two months' pay to a hardship fund for workers.

The revenue loss comes as spending is soaring on supplies that are in shortage, extra workforce and other preparations for an expected -- and in some cases realized -- surge of Covid-19 patients, hospital executives said. That has put hospitals in "an economic vise," Mr. Hazen said.

A $2 trillion federal stimulus package signed into law last Friday is set to deliver aid, including a $100 billion fund for hospitals and other health-care providers. Hospitals say they don't know how the money will be divvied up or how quickly it will get to hospitals.

Tuesday, the American Hospital Association asked the Trump administration to immediately push out about $23 billion by sending hospitals $25,000 for each of their beds, with more for those in coronavirus hot spots. Wrapping in all parts of the bill, the AHA estimates hospitals could end up receiving $120 billion in federal aid.

A spokeswoman for the Department of Health and Human Services said the administration "is continuing to take quick and decisive action to combat Covid-19 and protect Americans."

At Three Rivers Hospital, in Brewster, Wash., executives are waiting for government aid to offset a 42% drop in revenue in March, due to a slump in emergency-room traffic and primary-care visits and halted elective procedures. Help from the state is enabling Three Rivers to pay employees for the next few weeks, while a potential advance from Medicare might fund another month of operations. The hospital doesn't know how it will get a share of the $100 billion federal relief fund.

For now, Three Rivers's books show about $900,000 in unpaid bills, and executives have been putting off vendors.

"To have this happen, and to have this happen so rapidly, has been devastating," said Scott Graham, chief executive of 25-bed facility and another nearby hospital.

Beaumont Health, based in Southfield, Mich., operates eight hospitals around Detroit and Southeast Michigan and is quickly burning through cash, said John Fox, the nonprofit system's chief executive. It needs about $12 million to finance daily operations and had enough reserves before the pandemic to stay afloat for about 200 days. Now Beaumont is losing about $70 million a month after halting electives in March.

Meantime, the system has ramped up spending to respond to the pandemic, he said. Tuesday afternoon, Beaumont had about 900 hospital patients with coronavirus infections.

Its cash reserves have been further depleted by tumbling markets, Mr. Fox said. Nonprofits don't return cash to shareholders and instead pour profits into capital projects and investment portfolios. Beaumont's investment portfolio was down 10% year-to-date as of March 27.

Fitch Ratings said Monday that markets had erased about 30 days of operating cash for the median nonprofit-hospital borrower in its credit portfolio. Many hospitals will likely violate terms for debt-service coverage set by lenders in the municipal bond markets, triggering a "soft" default in the first or second quarter, Fitch hospital analyst Kevin Holloran said. Nonetheless, hospitals are widely expected to pay bondholders on time, he said, avoiding a "hard" default that could accelerate repayment.

Major credit-ratings firms lowered their outlook for hospitals to negative in recent days, as efforts to fight the pandemic hurt hospital profits and the overall economy.

The federal help will likely fall short of making up the industry's full losses, said Gary Taylor, an analyst with JPMorgan Chase & Co. Based on an informal survey of hospital owners last week, Mr. Taylor estimated that revenues are down 40% to 60%, with sharp drops in emergency-room visits and inpatient surgical volumes.

"The overall level of activity is lower than we've ever seen," he said. "It's a really unprecedented situation." On the other side, he added, health insurers could see a financial benefit from the forgone procedures, as the cancellations save them money.

Though many might be rescheduled, the surgeries being canceled are often those most essential to hospitals' earnings, including hip and knee replacements, as well as other procedures performed on patients with private insurance.

Coronavirus cases will often be less profitable, partly because many Covid-19 patients will be on Medicare, which often pays less than employer plans despite a newly enacted rate bump for such patients, analysts said. Care required for coronavirus infections can also be intensive and costly.

A recent survey by analysts at Barclays PLC found that doctors were seeing visits drop by about 50% on average. Though some were replaced by remote telehealth consultations, that might not be enough to offset the decline, they wrote.

In Dallas, Chrisette Dharma, owner of Southwest Family Medicine Associates, an eight-doctor family medicine practice, furloughed a third of her 27-person staff last week, setting aside cash to help them financially. The practice is now doing around 50 to 70 visits a day, less than half its typical volume, leading revenue to drop 75%, she said.

Many of visits now occur remotely, and the insurer reimbursement isn't yet clear. Dr. Dharma is looking at whether she can get help through one of the new federal programs, she said: "We are surviving on a prayer."

Write to Anna Wilde Mathews at anna.mathews@wsj.com and Melanie Evans at Melanie.Evans@wsj.com

(END) Dow Jones Newswires

April 01, 2020 15:33 ET (19:33 GMT)

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