Pediatric hospitals face ‘double whammy,’ not spared from COVID-19 effects

By | October 13, 2020

Despite COVID-19 being more lethal in older people, the pandemic and its effects have not spared pediatric hospitals.

Pediatric patient volumes were hard hit in the early months of this year amid the onset of the public health crisis, but they’ve been slower to return compared with adult acute care facilities, a lingering problem for operators. The drag on volumes will likely be coupled with cuts to Medicaid programs as state budgets get pinched, a major concern for children’s hospitals that rely heavily on Medicaid for reimbursement.

“The reality is: It’s been really tough,” Amy Knight, chief operating officer of the Children’s Hospital Association, said.

The natural assumption might be that pediatric hospitals were largely unaffected because the novel coronavirus isn’t as deadly among a younger cohort. But children’s hospitals were also forced to stop electives, didn’t see many COVID-19 patients and were left out of initial federal rescue packages to help keep them financially afloat.

Still, there is continued concern that too few Medicaid-reliant providers actually received federal relief money, a group that is likely in great need as pressure to cut Medicaid mounts.

“The double whammy was we were not getting many patients with COVID but we had to shut down our operations,” Jim Versalovic, interim physician-in-chief and pathologist-in-chief at Texas Children’s Hospital in Houston, said.

Pediatric visits remain stubbornly low, especially in the ER, according to a recent analysis from TransUnion that compares pediatric and adult volumes.

Emergency room visits among adults were down 16% during the week of Aug. 16, while pediatric emergency room visits were down a whopping 58%, according to TransUnion.

“It’s slower to come back, I think we’re seeing that across the country,” Knight said of overall volumes, though she noted the severity varies market by market.

Adult outpatient volumes were down just 1% while child outpatient visits were depressed by 23% during that same week, according to TransUnion. Inpatient is the one key metric where volumes are back to near normal for pediatric patients, TransUnion said.

It’s unclear what exactly is contributing to these compressed pediatric volumes though some have ventured to guess parents may be hesitant to return to healthcare settings, too.

Pediatric providers have been particularly hard hit because so much of the care they provide could be considered non-emergent, Kevin Holloran, an analyst with Fitch, said.

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“For a pediatric hospital, particularly the bigger ones, that’s 75% of the work that they do,” Holloran said of elective care, pointing out that children’s hospitals tend to provide care for complex cases.

More than one-third of hospitalizations at freestanding children’s hospitals were for medically complex conditions, a 2016 research paper found. At children’s hospitals, the most common conditions tend to be for respiratory issues and chemotherapy, according to the report in the Journal of Hospital Medicine.

The dip in pediatric care has even resulted in a steep drop in pediatric vaccinations amid the pandemic, raising alarms, according to data from the Centers for Disease Control and Prevention.

Depressed volumes drag finances

The sluggish volumes have led to strained finances for many providers. It has led to significant lost revenue, or about a 40% hit on average from March to May, Knight said.

She cautioned that for some it’s been much worse. Overall, children’s hospitals are projected to lose $ 10 billion in revenue by the end of 2020.

Mandatory shutdowns hurt healthcare providers as they caused patients to stay home and revenue to dry up. Early on in the pandemic, healthcare operators begged the administration to provide relief funding as some hospitals burned through cash reserves and worried about the ability to stay open, particularly during a deadly outbreak.

Congress earmarked $ 175 billion for the healthcare industry through different pieces of legislation, but the funding formulas were based on Medicare, the government program that pays for care for older adults. That put pediatric hospitals and those that rely on Medicaid at a disadvantage for receiving help.

“When the funds were flowing so fast and furiously in April it pretty much bypassed them,” Holloran said.

General distribution of provider relief grants   
Funding phaseAmountDescription
Phase 1$ 50 billionIn April, HHS began sending the first tranche of money based on providers’ Medicare fee-for-service revenue.
Phase 2$ 18 billionIn June, HHS began directing relief funds to Medicaid providers, dentists and assisted-living facilities.
Phase 3$ 20 billionIn October, HHS said providers could apply for funds even if they previously received or rejected earlier payments.

In June, HHS tried to address that concern and allocated $ 25 billion of the provider relief funding to Medicaid providers and safety net hospitals. Still, children’s hospitals have been “overlooked and underfunded,” CHA has said.  

Targeted funding for relief funds  
COVID-19 high impact$ 22 billionHHS allocated funds to more than 1,000 providers hard hit by the virus.
Rural providers$ 11.3 billionHHS targeted funds to more than 4,000 rural providers.
Skilled-nursing facilities$ 7.4 billionHHS allocated funding to more than 28,000 skilled-nursing facilities and nursing homes.
Tribal hospitals and urban clinics$ 500 millionHHS targeted funding to tribal facilities and clinics in urban areas.
Safety-net hospitals$ 14.7 billionHHS allocated funding to safety-net hospitals including about $ 1.4 billion to 80 freestanding children’s hospitals.

Now, Knight worries about recent changes to reporting requirements in connection to the provider relief funds and whether some facilities will be forced to return money.

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There needs to be more nuance applied to children’s hospitals and clarity from regulators as they accept these funds, Knight said.

Analysts at Oliver Wyman have said that for every 1% increase in unemployment, health systems can expect to lose revenue of 0.5% and 1%. Given the magnitude of unemployment, health systems face revenue losses between 3.5% and 10%, which will require aggressive cost-cutting strategies 10% to 20%.

“As a broad statement, I think the implication here is you’re not going to get there by reducing a couple of heads here and trimming the budget next year,” Dan Shellenbarger, partner in Oliver Wyman’s health and life sciences practice, said during a recent virtual conference hosted by the American Hospital Association.

Ultimately, how fast hospitals reacted and how seriously they took the threat, helped them weather the pandemic and its subsequent effects, Holloran said, pointing to Texas Children’s Hospital as a good example of a facility that acted swiftly.

Texas Children’s Hospital, which is the largest U.S. children’s hospital with almost 1,000 beds, quickly set up a strategy in early January that included securing personal protective equipment and putting a testing protocol in place in some areas as early as January. Volumes were challenged at the peak and were about 70% of pre-COVID activity but have rebounded and hover between 85% to 95% of pre-COVID levels.

“We have a DNA of preparedness,” Jackie Ward, associate chief nursing officer, said. Sitting on the Gulf Coast, the hospital is always prepared for weather events, so preparing for the worst is baked into the culture.

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Margin v. mission?

For many children’s hospitals, 50% or more of total reimbursement comes from Medicaid, a contrast to a traditional adult acute care hospital that relies on Medicaid about half as much.

In fact, Medicaid is an essential form of coverage for a large portion of America’s children. They make up the largest portion of Medicaid enrollees (41%) but account for just 19% of overall program spending, according to Georgetown University Health Policy Institute Center for Children and Families.

Policy experts are concerned over the fact that too few Medicaid providers applied for the pandemic relief funds. Of the roughly $ 15 billion that was set aside for Medicaid providers, only 15% of those eligible applied as of Aug. 30, according to the Medicaid and CHIP Payment Access Commission.

About $ 2.2 billion of the $ 15 billion has been paid out, prompting questions and concerns from MACPAC commissioners during a recent public meeting. “It’s sort of disturbing that so little of that fund has been actually distributed,” Commissioner Tricia Brooks, senior fellow at Georgetown University Center for Children and Families, said.

The failure to contain the virus has caused a downturn in the economy and spurred historic job losses.

Even so, Medicaid programs are likely on the chopping block in many states as they’ll likely be forced to make cuts to balance budgets.  

States will likely balance the budget on the backs of big programs like education and Medicaid, which is already underway in some states. 

There are some services lines or markets that are mission driven but lose money.

The cuts will likely force hospital boards to have tough discussions about “margin versus mission,” Holloran said. 

“You may have to have a very serious conversation about whether you can keep doing those things,” Holloran said, noting it will also spark conversations around rethinking capital spending.

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