Coronavirus has cut deep into Philly-area hospitals’ finances

Large nonprofit health systems in the Philadelphia region saw sharp negative swings in operating profitability in the three months ended March 31, as the coronavirus pandemic started unleashing an unprecedented disruption in health care.

It is too soon to know the full impact of the pandemic, but there are signs that the massive amount of federal aid steered to hospitals starting last month is sparing them from the worst.

Temple University Health System, which at the peak of the pandemic in April was caring for 29% of the hospitalized COVID-19 patients in Philadelphia, said Thursday that it rebounded from a $12.4 million operating loss in March to post an operating profit of $18.7 million in April — thanks to $35.5 million of federal stimulus money.

On a conference call Thursday with municipal bond investors, Temple, which has since received an additional $55 million in aid, did not estimate the overall financial impact of the coronavirus. But it said elective procedures are ramping up and that transplants had restarted, positive signs for the system’s finances.

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“Today, we are at six-sevenths of normal volume,” chief executive Mike Young said, referring to elective surgeries, which are the most profitable part of operations for most hospitals. Temple backed off an earlier estimate of $40 million in monthly losses from COVID-19, but still expects to lose money even after federal aid.

Temple has been at the heart of the region’s fight against the coronavirus, but even wealthy systems that had a light load of inpatients took a financial hit because they deferred all non-essential procedures. Children’s Hospital of Philadelphia, which received $42.9 million in federal aid, saw its operating margin fall to 0.5%, from 5.9% last year.

“CHOP continues to experience a significant drop in patient volume and revenue that now has us carefully evaluating future plans — including building and construction projects,” a spokesperson said Thursday. CHOP recently described plans to spend $3.4 billion on expansion projects, including $1.9 billion on a new inpatient tower slated to open in 2027.

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CHOP said that it is confident it will continue building its $289 million, 52-bed hospital in King of Prussia, but that most other projects are being evaluated. An increase in philanthropic support for these projects would also help, CHOP said.

The six-hospital University of Pennsylvania Health System also remained profitable on an operating basis during the first three months of the year, but expects an operating loss of $317 million in the quarter ending June 30 — not counting $190 million in federal aid from the U.S. Department of Health and Human Services.

In April, Penn saw a 72% decline in surgical cases, Keith Kasper, the health systems’ chief financial officer, told the University of Pennsylvania board this month. In the last week, surgery volumes have risen to 65% of normal volume, a health system spokesperson said. Outpatient visits and overall hospital admissions are also coming back.

Tower Health, which has expanded dramatically in the the last three years, most recently through the purchase of St. Christopher’s Hospital for Children, had the steepest operating loss in the region, at 16.5%, or $91.6 million.

The system, based in West Reading, where it is anchored by Reading Hospital, has received $66 million in coronavirus stimulus grants and has taken other steps to raise cash, but declined to comment on its current cash position. It also furloughed at least 1,000 employees last month.

Einstein Healthcare Network took a similar route to save money. About 1,600 people were furloughed or took pay reductions, a spokesperson said. Einstein, which is fighting the Federal Trade Commission to save its planned acquisition by Thomas Jefferson University, said it is still on track to lose $70 million from March through June, before accounting for the $48 million in federal aid it has received.

Jefferson, which on May 5 canceled its planned acquisition of the Fox Chase Cancer Center from Temple University because of the financial impact of COVID-19, had an operating loss of $95 million, for a negative margin of 7.3%. The nonprofit, which is based in Center City, cared for large numbers of COVID-19 patients at Thomas Jefferson University Hospital and at Abington Hospital.

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Temple, meanwhile, has moved on to Plan B for Fox Chase. That means a fuller integration of the specialty hospital into the Temple system, said Stuart McLean, who is ending his tenure as the health system’s chief restructuring officer Friday.

Jefferson’s agreement to buy Temple’s share of the nonprofit Medicaid insurer Health Partners Plans remains in place, but “timing of a close remains uncertain,” McLean said.