Financial impact of COVID-19 on hospitals and lessons learned: Perspectives from different countries and healthcare systems (YEL2023)

Date:  10 November 2023

Introduction

The global COVID-19 pandemic has posed unprecedented challenges to healthcare systems, profoundly impacting their financial stability. Hospitals worldwide faced significant fiscal hurdles as they responded to the crisis (1). Urgent investments were required for additional personnel, work schedule reconfigurations, and the establishment of new medical facilities, resulting in escalated operational expenses (2).

As we reflect on these extraordinary circumstances, crucial questions arise. Is this an opportunity for substantial modernizations in healthcare? Should we enhance our financial models to better withstand future challenges? What enduring insights can we glean from this experience to refine healthcare financing? This article explores the profound financial repercussions of COVID-19 on hospitals, aiming to extract valuable lessons for managing future pandemics. We examine how COVID-19 has not only impacted hospitals medically but also financially, seeking insights to enhance our preparedness for similar challenges.

This examination delves into both the immediate fiscal consequences of the pandemic and the enduring lessons it has provided. Drawing upon the experiences of hospitals in diverse countries, including Zambia, the United Arab Emirates (UAE), Israel, Catalonia, and South Africa, we gain diverse perspectives on the financial challenges confronting healthcare systems worldwide.

Methodology

To assess the financial impact, we conducted a survey involving hospitals from various countries within the group. The survey gathered data on increased costs, revenue loss, shifts in service demand, and financial vulnerability. Additionally, we reviewed published evidence to identify best practices and recommendations.

The data is based on the recent analyses that have explored the economic impact of COVID-19, focusing on three primary factors (3).

  • Increased costs: Patient admissions during the initial pandemic stages led to rising costs, encompassing expenses for staffing, personal protective equipment (PPE), medical supplies, and infrastructure expansion.
  • Revenue loss: Hospitals experienced revenue declines due to the cancellation or postponement of elective procedures and non-essential services, straining finances alongside high pandemic response costs.
  • Shift in service demand: Hospitals adapted to changing service demands by reallocating resources and staff.

The YEL 2022 group published an article on building resilient healthcare financing infrastructure in the aftermath of the COVID-19 pandemic and its lessons for future pandemics (4). The article highlighted the global transformation in healthcare financing, affecting available funds and their allocation. Countries with robust health system financing prior to the pandemic more effectively adjusted to the changes. Conversely, nations with weaker financial systems faced challenges, necessitating alternative sources of financing (4). In this 2023 article, we build upon previous analyses, offering new data and insights.

Country-specific experiences

Catalonia, Spain (Catalan Hospital, Health and Social Services Association)

The measures implemented in Catalonia and the invoicing strategies related to the extraordinary activity arising from the response to COVID-19 have significantly mitigated these effects. In 2020, to align activities with healthcare needs, billing systems, contracted services, and special programmes were adjusted to address the pandemic.

The data presented here represents an aggregate from a sample of 67 hospitals within the Union entities (5):

  • Operating revenues for hospitals increased by 17.13% in 2020 due to higher earnings from providing healthcare services to patients covered by the public healthcare system.
  • Operating expenses for specialized care hospitals increased by 10.81% in 2020.
  • For specialized care hospitals, personnel expenses accounted for 55.70% of operating expenses, marking a 12.88% increase from the pre-pandemic year.
  • The variation in personnel expenses explains 65% of the overall increase in operating expenses, mainly due to the hiring of additional staff and increased variable activities (such as shifts and extended hours) to combat COVID-19 and, primarily from the second half of the year, to recover maximum ordinary contracted activities.
  • Pharmacy expenses rose by 4.50%, encompassing both hospital pharmacy and medication associated with outpatient treatment.
  • Expenditure on medical supplies increased by 13.76%, largely due to heightened consumption of personal protective equipment and medical supplies related to COVID-19, compensating for the decrease in materials used for regular healthcare activities during the period.

Israel (Sheba Medical Center)

In Sheba Medical Center, a tertiary facility located in Ramat Gan, Israel, crucial insights emerged regarding the substantial financial ramifications of the COVID-19 pandemic on this prominent healthcare institution. Sheba Medical Center, a governmental hospital with a robust workforce comprising 1,636 employees and an impressive bed capacity of 10,000, was significantly affected.

  • The pandemic necessitated a surge in expenditure on critical resources, including PPE, such as masks, gloves, and gowns. They allocated a substantial budget of 24 million NIS for PPE procurement in 2021-2022 alone, underscoring the immense strain on their financial resources.
  • Furthermore, the hospital had to invest in essential modifications, like shifting wards, to accommodate the evolving needs of COVID-19 patient care.
  • Additionally, they had to procure a range of additional medical equipment, such as ventilators, oxygen support, and beds, contributing to a considerable increase in costs. Oxygen consumption, a vital resource during the pandemic, incurred significant expenses, though precise figures were not specified.
  • The financial impact extended to a decrease in revenue due to the unavoidable cancellation or postponement of elective procedures during the pandemic, adding to their fiscal challenges.
  • Furthermore, there were substantial expenses associated with additional medical consultations and medications during this critical period. Notably, Sheba Medical Center reported spending 2.2 million NIS on reagents in 2022, highlighting the multifaceted and extensive financial implications of COVID-19 on this esteemed healthcare institution.

Zambia (Medland Hospital, Lusaka)

Zambian hospitals took some measures in their departments to face the pandemic and properly address the crisis, which led to a considerable financial impact on the hospitals. The measures taken resulted in a significant mitigation of the effects of this pandemic.

The results below are collected from Medland Hospital in Lusaka, Zambia. Medland is a private hospital with 245 employees, 72 beds, and the patient coverage is either cash or by insurance. In the period from 2020 until 2022, the hospital adjusted the billing systems, contracted services, and special programs by aligning activities with healthcare needs to properly face and respond to the pandemic.

  • The hospital faced increased expenses related to the pandemic due to the recommended specific measures of hygiene and sterility. Medland witnessed a 70% increase in the cost of PPE, and 80% increase in the cost of sanitizers and hygiene tools.
  • Labour costs increased by 30% for additional staff to accommodate the needs of the hospital during the pandemic and to manage the large influx of patients suffering from COVID-19.
  • There was a need to make certain adjustments in the hospital to widen the areas of isolation and separate the COVID ward from the other hospital wards, including use of an elevator exclusive for COVID patients. Also the hospital increased the number of rooms and beds. Costs of modifications done by the hospital (like shifting wards) increased by 40%.
  • The increase in the number of patients suffering from COVID-19 infection, either critically ill or stable, has significantly increased the costs of additional medical equipment needed (like ventilators, oxygen, beds, etc.), which increased by 85%.
  • Oxygen supplementation was a mainstay treatment in COVID-19 and led to dramatic surge in oxygen consumption and thus its cost. At Medland, the cost of oxygen increased by 90% during the pandemic period.
  • The overall revenue in the hospital decreased by 10% due to cancelled or postponed elective procedures during the pandemic. This was because hospitals had to limit elective surgeries and other non-essential services to free up resources, leading to a reduction in revenue.
  • Certain cases needed the aid of specialized consultants to interfere in management and give opinions and consultations. Cost of medical consultation increased by 20%.
  • Finally, due to specific treatment guidelines recommended to treat COVID-19 infection, expenses spent on medications during the pandemic increased by 60%.

UAE (Mediclinic Middle East)

Overall, the country put together a remarkable response in managing the pandemic and tackling its impacts, including financial. Through the National Crisis and Emergency Management Authority (NCEMA) UAE managed the crisis effectively. UAE has a comprehensive government-funded health system as well as a large and robust network of private healthcare providers. The pandemic brought a lot of synergy between the two systems, with both the public and private sectors coming forward. Since most of the population is covered by health insurance, the key for the private sector was to find a way with the payors and regulators to build a funding model for COVID patients. For example, in the emirate of Abu Dhabi, hospitals treating COVID patients were reimbursed through a separate scheme billed under the Department of Health programme.

Mediclinic Middle East specific experience:

  • Surgery electives were cancelled and replaced by very sick patients for which funding uncertainty was a real challenge.
  • Significant fixed cost base as all medical staff, including doctors are employed (which accounts for over 70% of the cost base) – putting immense working capital pressure on hospitals.
  • Massive support was required from lenders for covenant waivers. This was difficult for both parties given high levels of uncertainty
  • The uncertainty caused stickiness in the funder market with the government and private Funders slowing claims reimbursements putting further strain on liquidity of hospitals.
  • Global supply chain disruption caused consumable pricing in some cases to fluctuate with little ability to manage or control given scarcity especially with China shutting down in the early stages.

The following are combined numbers for two Mediclinic hospitals, Mediclinic Al Jowhara & Mediclinic Al Ain, for 2020-2021:

  • Total operating revenue grew due to an increase in inpatient revenue that was due to surges in COVID admissions.
  • On the other side, there was a year-on-year drop in outpatient attendance.
  • Outpatients cases dropped due to cancellation of electives.
  • Direct operating expenses grew the most driven by a surge in the cost of consumables to cater to the increasing need for PPEs, PCR testing kits, and ICU consumables.
  • Overheads (including salaries and allowances) and administration overhead grew.

South Africa (Bongani Regional Hospital)

The South African health system was severely affected by the COVID-19 pandemic due to the following: lack of PPE, increased mortality rates, mental health problems, substance abuse, resurgence of NCDs.

Bongani Regional Hospital (BRH) along with other constituents of the public health sector, has been challenged by COVID-19 to develop systems for reducing and managing Health Care Risk Waste (HCRW) in a safe and sustainable manner that simultaneously promotes environmental and occupational health (6). Globally, there are increasing concerns regarding the adverse effects of escalated COVID-19 transmission risks in relation to the amount of HCRW generated at public healthcare facilities (7).

A quantitative, descriptive study was conducted to collect data based on the financial expenditure and HCRW generation rates at BRH. Completed data for HCRW tonnages for 2019 (before the pandemic) and 2020 (during the pandemic) was captured and evaluated.

  • The expenditure on HCRW during 2019 and 2020 equated to 114565.10 $ pa and 122301 $ pa respectively with the generation rate increasing from 66657.24 kg to 71158.36 kg pa. As of the pandemic declaration in March 2020, the accumulated amount of waste increased by 4501.12 kg, equating to 7795.62 $ The calculated average indicated an increase of 6.8 % of HCRW generation and expenditure.
  • The COVID-19 pandemic has significantly increased the generation of HCRW for BRH, and thus negatively impacted the expenditures incurred in treating and disposing of HCRW in addition to the increasing of the probabilities of pollution emanating from HCRW.
  • Segregation of HCRW remains a key measure for minimization of HCRW stream; however, robust and aggressive vaccination drives and campaigns, including other measures aimed at curbing the spread of the virus, should be promoted frequently in order to reduce the burden on finance and the environment as a result of treating and disposing of HCRW.

Discussion

The experiences of Catalonia, Spain, Israel, Zambia, South Africa, and the United Arab Emirates provide insights into the diverse financial responses of hospitals to the COVID-19 pandemic.

Catalonia successfully boosted its operating revenues by realigning billing strategies, which proved effective in addressing the crisis.

In contrast, Israel and Zambia encountered mounting expenditure burdens due to the essential acquisition of critical resources such as PPE and the decrease in revenue resulting from the cancellation of elective procedures.

In South Africa, the COVID-19 has significantly impacted healthcare risk waste in the private and public sectors, leading to an increased volume highlighting the need for efficient and sustainable waste management practices.

In the UAE, a notable aspect was the collaborative effort between the public and private healthcare sectors, leading to the establishment of a specialized financing model for COVID-19 patients. However, private hospitals faced challenges related to liquidity due to delayed claims reimbursements.

In essence, the variability in these responses underscores the significance of healthcare system structure and adaptability in the face of a global health crisis. Hospitals worldwide were confronted with escalating costs and shrinking revenues, emphasizing the imperative to innovate and adapt financially for the sustainability and resilience of healthcare systems in the future.

Recommendations

By following the recommendations and adopting a forward-thinking financial planning approach, healthcare institutions can enhance their readiness to confidently navigate future uncertainties with resilience. The recommendations are categorized into five key areas:

Financial strategy and preparedness:

  1. Financing flexibility: Develop adaptable financial frameworks capable of swiftly accommodating unforeseen healthcare demands during crises.
  2. Resource allocation: Implement and refine resource allocation mechanisms that enable hospitals to carefully direct funds to areas of critical need during times of crisis (10).
  3. Risk mitigation strategies: Strategically plan and execute measures to mitigate financial risks associated with unexpected healthcare crises including the development of contingency funds.
  4. Regulatory agility: Advocate for and facilitate the creation of regulatory frameworks that possess the agility to adapt to challenges, reducing bureaucratic hurdles (11).
  5. Emergency preparedness funds: Create dedicated emergency preparedness funds that can be activated during pandemics or other healthcare crises.

Resource management and efficiency

  1. Optimal cash and liquidity management: Establish dedicated liquidity management teams to explore diversified financing options, assess credit risks, and capital.
  2. Vigilant cost control: Ensure financial adaptability through strengthened procurement controls, increased cost flexibility, and a meticulous evaluation of the employee base.
  3. Strategic supply chain management: Establish a robust supply chain management system that ensures a steady and diversified flow of essential medical supplies, including PPE, ventilators, and medications.

Data-driven planning and technology

  1. Data-driven financial planning: Leverage data analytics and predictive modelling to anticipate healthcare demands during crises. (11).
  2. Research and development investment: Allocate a portion of the hospital’s budget to research and development initiatives focused on pandemic preparedness.
  3. Scenario-based contingency plans: Develop and update scenario-based contingency plans that outline specific financial responses to various pandemic scenarios.

Collaboration and partnerships

  1. Public-private partnerships: Foster strategic collaborations with private sector entities, research institutions, and philanthropic organizations to access additional resources and expertise during crises.
  2. Global knowledge sharing: Engage in international knowledge sharing and collaboration to exchange best practices, lessons learned, and innovative solutions for pandemic response and financial resilience.
  3. Insurance and risk pooling: Explore the feasibility of insurance or risk pooling mechanisms at the national or international level with insurance providers and governmental agencies.

Stakeholder engagement and communication

  1. Financial transparency and reporting: Maintain a high level of financial transparency and reporting to install confidence in stakeholders, including investors, donors, and the public.
  2. Patient outreach and communication: Implement effective patient outreach and communication strategies to reassure patients and encourage continued healthcare engagement during crises.
  3. Workforce resilience: Strategies including cross-training of staff, flexible work arrangements, and mental health support.
  4. Government support advocacy: Advocate for government support and policy reforms that facilitate financial stability during pandemics, including tax incentives, grants, and efficient administrative processes.

Conclusions

The financial impact of the COVID-19 pandemic on hospitals has shown a critical disparity between the traditional financing systems in place and the unique challenges posed by global health crises. Hospitals traditionally operate within financing models structured around specific medical activities or procedures, characterized by established pricing structures and a controlled level of risk transfer. Under stable circumstances, this system effectively manages risks, as the volume of activities remains relatively predictable, and pricing is well-defined.

However, the emergence of a pandemic, particularly one caused by a novel and highly contagious disease like COVID-19 disrupts these stability factors, rendering them highly unpredictable and financially challenging for hospitals.

In a scenario, it becomes clear that this can result in short- to medium-term financial challenges. Hospitals and healthcare professionals, who find themselves at the forefront of managing the crisis may face financial risks in the aftermath of the pandemic.

This highlights the urgency of reevaluating and modernizing financing models for healthcare systems and hospitals. It emphasizes the need for flexible, adaptable financial frameworks that can respond to unforeseen healthcare demands during crises. Furthermore, it underscores the importance of collaboration, both within the healthcare sector and with external partners, to collectively share the burden of financial challenges and enhance global healthcare resilience.

In conclusion, it calls for a future where healthcare systems are financially resilient and capable of weathering the storms of global health crises while continuing to provide quality care.

References

  1.  World Health Organization Health financing for the COVID-19 response: process guide for national budgetary dialogue. ACT-A Health Systems Connector. Geneva:; 2021
  2.  Rahim, Fazeer, Richard Allen, Hélène Barroy, Laura Gores, and Joseph Kutzin. 2020. “COVID-19 Funds in Response to the Pandemic.” Special Series on COVID-19 (August 26), International Monetary Fund, Washington, DC
  3.  World Bank. 2023.The World Bank Group’s Early Support to Addressing  the COVID-19 Economic Response. April 2020—June 2021. An Early-Stage Evaluation. Independent Evaluation Group. Washington, DC: World Bank.
  4.  Dr Cynthia Omina Kanda (Kenya, Co-chair), Miyele Kaliwanda (Zambia, Co-chair), Jan Begenat (Germany), Tien-Ching Lee (Taiwan). Building resilient financing for healthcare infrastructure – lessons for future pandemics (YEL2022) IHF. https://ihf-fih.org/news-insights/building-resilient-financing-for-healthcare-infrastructure-lessons-for-future-pandemics/
  5.  Catalan Health Service. Balance Center. Financial Report for Hospital and Specialized Care. 2021.
  6.  Karki S, Niraula SR, Karki S. Perceived risk and associated factors of healthcare waste in selected hospitals of Kathmandu, Nepal. PLoS One. 2020 Jul 13;15(7):e0235982. doi: 10.1371/journal.pone.0235982. PMID: 32658935; PMCID: PMC7357750.
  7.  Mogaka, Brenda & Maru, Shital & Karimi, Peter & Nimpagaritse, Manassé. (2023). Healthcare Waste Management Practices in Public Health Facilities in Nairobi City County, Kenya. 2023
  8.  Chisholm JM, Zamani R, Negm AM, et al. Sustainable waste management of medical waste in African developing countries: A narrative review. Waste Management & Research. 2021;39(9):1149-1163. doi:10.1177/0734242X211029175
  9.  Ajbar El Gueriri, S.; El Mansouri, F.; Achemlal, F.; Lachaal, S.; Brigui, J.; Fakih Lanjri, A., (2023). Healthcare waste characteristics and management in the regional hospital and private clinic. Global J. Environ. Sci. Manage., 9(4): 805-818.
  10.  Schmidt F, Hauptmann C, Kohlenz W, Gasser P, Hartmann S, Daunderer M, et al.. Tackling the waves of COVID-19: a planning model for Intrahospital resource allocation. Front Health Serv. (2021) 1:718668. doi: 10.3389/frhs.2021.718668, PMID
  11.  Sittig DF, Singh H. COVID-19 and the need for a national health information technology infrastructure. JAMA. (2020) 323:2373–4. doi: 10.1001/jama.2020.7239
  12.  OECD. The territorial impact of COVID-19: Managing the crisis and recovery across levels of government Policy Responses to Coronavirus (COVID-19). 2021

Sheba Medical Center, Israel

Prof. Abdulla Watad

Deputy Head of internal medicine and Head of spondyloarthritis unit
Young Executive Leaders 2023

IHF Member: Sheba Medical Center, Israel. Specialized in Internal Medicine and Rheumatology and researcher in rheumatology and immunology at the Autoimmune Diseases Center.

Medland Hospital, Zambia

Dr Bilal Asaad

Pediatrician
Young Executive Leaders 2023

IHF Member: Medland Hospital, Zambia. Leading the paediatrics and neonatology department, and the training programme of staff and interns in the hospital.

Catalan Hospital, Health and Social Services Association (La Unió), Spain

Carles Oliete

Cabinet Office and International Affairs manager coordinator
Young Executive Leaders 2023

IHF Member: Catalan Hospital, Health and Social Services Association (La Unió), Spain. Health economist developing transformation organizational, financing, quality and innovation projects.

Mediclinic Middle East, UAE

Dr Tamseel Makhdoomi

Hospital Administration Manager
Young Executive Leaders 2023

IHF Member: Mediclinic Middle East, UAE. Healthcare management executive in a team responsible for delivering yearly hospital budget, financial and operational KPIs.

Free State Department of Health: Bongani Regional Hospital, South Africa

Tshepo Mokhadi

Environmental Health Practitioner
Young Executive Leaders 2023

IHF Member: Department of Health of South Africa. Spearheading Global Green and Healthy Hospitals in South Africa, promoting sustainable practices in public sector healthcare.

Reviewers: James Deiparine  (YEL 2022, Philippines), Hiba Al Naabi (YEL 2019, Oman), Kean Villarta (YEL 2022, USA)

Written by:

Karen Cabuyao

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