Some hospitals could lose out on federal relief dollars

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One of the priorities of the CARES Act is to provide economic assistance to hospitals and healthcare facilities on the front lines, which are caring for possible and actual COVID-19 patients.

Though it gives relief for the health care industry, the fine print leaves some questions on the table as to whether hospitals will be treated proportionately, or rather, disproportionately. 

It remains to be seen exactly how the $100 billion grant will be allocated, but we are concerned it could inadvertently encourage a gold rush, rewarding hospitals that tell “good stories” to justify their expenses and lost revenues attributable to coronavirus. 

Powerful, cash-rich, well-connected hospitals know how to play this game and can quickly hire expensive and experienced lawyers and consultants to claim a piece of the cash pile. But smaller, less powerful and financially vulnerable hospitals, which urgently need the financial assistance, will be handicapped.

Here’s why: 

First, the grant application process is labor-intensive. Hospitals need to prepare reports and justification documents amid their efforts to combat the pandemic. More importantly, the criteria for grants is subjective and arbitrary. There are numerous ways to estimate lost revenues and incremental expenses for surge capacity caused by the outbreak. Different estimation methods yield vastly different amounts which, in turn, opens the door to lucrative contracts for external consultants to write grant applications. 

Second, the grant approval process is even more questionable. As outlined in the text of the bill, the secretary of Health and Human Services has the absolute power to pick winners and losers from the hospital applicants on a rolling basis. The fund has neither an obligation to disclose the selection criteria nor is it under pressure to perform due diligence after the grants are given. 

Together, the application and review process is time consuming, contrary to the CARES Act’s stated objective of providing fast liquidity to hospitals’ cash flows. We need an objective, comparable and evidence-based approach to ensure taxpayers’ money is used effectively to help hospitals and facilities affected by COVID-19. 

Here is a better way:

Step I: On April 16, split the $100 billion into two parts: funds to be distributed immediately for COVID-19 exposure prior to April 15; and funds to be used in the future to cover projected future inpatient admissions. The projection should rely on an estimate of inpatient admissions post-April 15 from a publicly available statistical model. Allocate the pre-April 15 fund based on each hospital’s pre-April 15 COVID-19 actual inpatient admission volume and send out the money. 

Step II: On May 1, allocate the remaining dollars into two portions: funds to be distributed immediately for actual inpatient admissions between April 16-30 for COVID-19 exposure; and funds for the future, based on an updated estimate from the publicly available statistical model of inpatient admissions post-April 30. Then send out the money based on each hospital’s April 16-30 COVID-19 actual inpatient admission volume. 

Step III: Continue to follow these steps to allocate the remaining dollars (and any future funding) twice a month until the pandemic is over and no significant additional inpatient admission is expected. 

This approach imposes no additional reporting burden on hospitals. Indeed, it is fast, transparent, sensitive to new developments and evidence-based.

Time and cash are critical to save Americans and preserve the financial viability of hospitals. The last thing we need is a bureaucratic process that more often than not hurts the ones that it claims to help.  

Dr. Ge Bai is an associate professor of accounting at Johns Hopkins Carey Business School and associate professor of health policy and management at Johns Hopkins Bloomberg School of Public Health. Dr. Shivaram Rajgopal is the Kester and Byrnes Professor of Accounting and Auditing at Columbia Business School and a senior scholar at the Jerome A. Chazen Institute for Global Business.

Tags CARES Act Coronavirus COVID-19 COVID19 economic stimulus hospitals Stimulus Package

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