The Early Impact of the COVID-19 Pandemic on Hospital Finances

J Healthc Manag. 2023 Jan-Feb;68(1):38-55. doi: 10.1097/JHM-D-22-00037.


Goal: The COVID-19 pandemic has caused both short- and long-term impacts on every aspect of society. Hospitals are among the most critical frontliners and have had to continually navigate the challenges caused by the pandemic. In this study, we examined hospitals' financial performance following the onset of the pandemic.

Methods: We used data from the Centers for Medicare & Medicaid Services Healthcare Cost Report Information System. The study sample included all general acute care and critical access hospitals that receive Medicare payments. The primary outcomes included operating margins, net patient revenues, operating expenses, and uncompensated care costs. We tested for average changes from 2019 to 2020 in hospitals' financial outcomes. We also tested for changes in financial outcomes across samples stratified by hospital characteristics: ownership type (investor-owned, nonprofit, and public), Medicaid disproportionate share hospital status, rural status, county uninsured rate quartile, and Medicaid expansion status.

Principal findings: Our sample consisted of a balanced panel of 4,059 hospitals (8,118 observations) with data spanning 2019 and 2020. Across the full sample of hospitals, operating margins declined by an average of 5.3 percentage points between 2019 and 2020, equating to a 130% reduction from 2019 levels. Underlying these margin declines, net patient revenues declined by 3.2% on average, while operating expenses increased by 1.5%. We observed no changes in uncompensated care costs despite the large number of job losses that accompanied the pandemic. When stratifying the analysis by hospital characteristics, differences were observed across ownership types. Notably, investor-owned facilities were less affected financially than nonprofit and public hospitals. Although safety-net and rural hospitals generally fared no worse than their non-safety-net and nonrural counterparts, hospitals located in Medicaid expansion states experienced steeper declines in operating margins relative to hospitals located in nonexpansion states, driven by larger relative declines in patient revenues.

Practical applications: The operating margin declines we observed can be attributed to supply-chain issues, persistent labor shortages, and suspension of elective services. The Affordable Care Act reforms in health insurance markets likely helped to insulate hospitals from increases in uncompensated care costs. In the shifting context of the pandemic, it is important to understand hospitals' financial performance so that measures can be taken to address further financial distress that may eventually lead to increased consolidation, hospital closures, and lower quality of care. Our findings stress the need for targeted responses that are tailored to underlying hospital characteristics. Temporary and targeted increases in inpatient and outpatient service prices can help offset revenue losses from the deferment of nonurgent care. Other policies can address the ongoing workforce challenges and supply-chain issues.

MeSH terms

  • Aged
  • COVID-19*
  • Hospitals, Public
  • Humans
  • Medicaid
  • Medicare
  • Pandemics*
  • Patient Protection and Affordable Care Act
  • United States