COVID-19 impact: Why are hospitals laying off nurses in the middle of a pandemic?

As the coronavirus threatens health and upends daily life throughout the world, UofSC Today is turning to our faculty to help us make sense of it all. While no one can predict exactly what will happen in the coming weeks and months, our faculty can help us ask the right questions and put important context around emerging events.

Banky Olatosi is a clinical associate professor in the Department of Health Services Policy and Management in the University of South Carolina’s Arnold School of Public Health.

In the middle of a pandemic, we don’t want hospitals to become insolvent and cut services. How serious is the financial damage being inflicted on hospital budgets by COVID-19 and how, exactly, is that damage being caused?

The financial damage caused by COVID-19 to hospitals and health systems is significant and will be long-lasting. To see how the damage is being done, it’s helpful to understand how hospitals traditionally generate revenue. Profit margins have always been low for U.S. hospitals, running between 4 to 6 percent, depending on hospital type and location (nearly one-third of all U.S. hospitals lost money in 2016). That’s why hospitals make strategic investments in areas that generate the most profit such as surgeries, which account for about 60 percent of hospital profits and consume 50-60 percent of a hospital’s annual operating budget.

Due to COVID-19, most elective surgeries have been canceled or postponed, leaving hospitals to face a financial double whammy. First, they lost up to 60 percent of surgical revenues, while continuing to incur fixed costs such as rent, supplies, staff time, etc. Hospitals were left with no choice but to lay off or furlough personnel and associated services to conserve money.

The pandemic seems to have exposed weaknesses in the U.S. public health system. Can the same be said for American hospitals in terms of their management, disaster preparedness and strategic resources?

Yes, it can and there is a lot to learn from this pandemic. Let’s consider three examples: infection control, supply chain management and staffing. First, due to persistent health professional shortages across the U.S., hospitals have often adopted a passive management approach to respiratory illness among their staff. This approach tolerated health workers coming to work with upper respiratory tract infections as long as they were not febrile (no fever). However, with COVID-19, this approach became a catalyst for infections originating in the hospitals. Also, hospitals were mostly unprepared to deal with enforcing advanced precautions like contact and droplet mitigation to deal with COVID-19. This increased the risks for more hospital-originated COVID-19 transmissions between health workers and patients.

A fine balance is needed for managing productivity and waste along the hospital supply chain. To avoid the cost of inventory, many hospitals adopted a just-in-time supply chain approach, buying materials only as they needed them rather than incurring the cost of purchasing or storing large inventories, paying to build and maintain storage areas or paying material handlers. But the risks and disadvantages of this cost-saving management approach are evident with the COVID-19 pandemic. The unanticipated breaks in the supply chain have affected hospitals negatively. As a result, hospitals have paid a high price for materials ranging from personal protective equipment to additional ventilators. The PPEs are particularly significant in the context of their role in preventing infections that originate in the hospital during the COVID-19 pandemic.

Finally, while hospitals have conducted disaster preparedness drills on pandemics, the nature of COVID-19 added new layers of challenges to workforce absenteeism. Infected health workers exacerbated staffing shortages, and absenteeism increased among health workers who had to care for sick household members. School closures and social distancing rules also impacted health workers with school-age children at home due to lack of childcare. This has forced hospitals to pay nearly double in temporary clinical staffing costs. Hospitals that don’t have much cash on hand will be severely affected.

What changes might come about for U.S. hospitals in the wake of the pandemic? For example, could this event push some smaller and rural hospitals into insolvency?

Several changes are likely to occur due to ongoing experience with the COVID-19 pandemic. Issues related to supply chain, inventory control and the number of beds to keep open will be at the forefront. Hospitals that were already experiencing financial losses may have limited resources to remain open. Rural hospital closures could increase, and struggling hospitals may be forced to merge or be acquired due to problematic cash flow issues. The risk of burnout among staff will increase, leading to future staffing shortages and increased staffing costs. Finally, social distancing rules will change the workflow and operations for all hospital operations for both staff and patients.

In the realm of national health care policy, could the pandemic move the United States closer to a nationalized health care system, or is our system of nonprofit and for-profit hospitals too entrenched to change?

Although the COVID-19 pandemic response has shown glaring weaknesses in our health system, it is not significant enough to be a tipping point towards a national health care policy for the following reasons. First, its most devastating effects are limited to a select number of states. Second, the majority of this impact has occurred mainly at the hospital level and affected mostly the elderly or those with underlying health conditions. Third, the demographic population subgroup most affected are those that have traditionally suffered inequitable health care. Until the effects are seen and experienced across all layers of the health system, across all states and by all population subgroups, the political response necessary to move to a national health care policy will not occur. 

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