Hospitals are calling on Congress for more Covid-19 relief even though they had higher profit margins during the pandemic than before it. Congress would be wise to reject these pleas.
To be sure, during the height of the pandemic, hospitals needed support from taxpayers to deal with the cost of treating Covid-19 patients and the loss of revenue from elective procedures as people avoided care. But the government’s response was more than what hospitals needed. Congress should turn off the spigot for them, particularly given the large federal deficits and growing inflationary pressures in the economy that new hospital spending would exacerbate.
During the pre-pandemic period, U.S. hospitals with July-June fiscal years generated about 5% average annual profit margins. From July 2020 to June 2021, their average annual profit margins more than doubled, increasing to 11%, as one of us (G.B.) and colleagues report today in JAMA Health Forum.
As concerns about Covid-19 infections grew in early 2020, health system operations were significantly affected. Many people deferred elective procedures and appointments that weren’t urgent, and many hospitals had to restructure their facilities to treat an influx of patients with Covid-19.
The federal government allocated more than $170 billion in subsidies to hospitals across the country. These subsidies not only defrayed their operational losses but also substantially improved their financial standing, particularly helping the most vulnerable hospitals. For those with January-December fiscal years, from January 2019 to December 2020, the average annual profit margin stayed stable around 7%, but increased from 4% to 7% for government and small hospitals, and from 2% to 8% for rural ones.
Although these subsidies continued throughout 2021, the landscape for Covid-19 has changed. Hospitalizations for this infection have declined significantly and other pandemic-related restrictions have been eased. Since people are now pursuing regular medical care and catching up on deferred appointments, why should taxpayers keep pumping money to boost hospitals’ bottom lines, especially given the large profits they made during the period when Covid-19 was at its worst?
Admittedly, the nation’s nursing shortage and overall economic inflation are elevating hospitals’ operating costs. The cushion built by federal relief and prior profitable operations should, however, help hospitals weather these turbulences.
Other industries are also facing labor shortages, supply chain shortages, and inflationary costs. Hospitals don’t deserve special treatment. Continuing unnecessary government subsidies would also reduce their incentives to improve efficiency, an important effort since many hospitals have developed inefficient, bloated cost structures.
Although hospitals are still using Covid concerns to argue for more relief funds, the data are clear: unless there is another deadly surge that floods hospitals with Covid-19 patients and deters people from seeking elective procedures, further taxpayer subsidies to support hospitals that have actually profited during the pandemic are not justified.
Ge Bai is a professor of accounting at the Johns Hopkins University Carey Business School, a professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health, and a visiting scholar at the Congressional Budget Office. Brian Blase is the president of Paragon Health Institute and former special assistant for economic policy to President Donald Trump at the National Economic Council.