The unintended consequences of the $178 billion bailout to keep hospitals and doctors afloat

“Every penny of that was critical and we were just thankful,” said Reynolds Lisk, a former Randolph board member who was born in the hospital in 1957 and fought to save it. “It literally enabled us to continue to operate.”

The money flowing from Washington was barely enough to keep Randolph afloat — but those funds proved to be a windfall for Atrium Health, a regional nonprofit hospital chain headquartered in Charlotte. Atrium got $617 million in government relief from April 2020 to December 2021. The money, along with a soaring stock market and surging payments for patient care, helped it reap more than a billion dollars in surplus revenue last year. Atrium bulked up with two mergers and announced plans for a third during the pandemic. It boosted its CEO’s compensation by 24 percent, to $9.8 million.

The vastly different experiences illustrate the unintended consequences of a $178 billion bailout that Congress dumped into the national health-care system at the start of the pandemic in an urgent attempt to keep hospitals and doctors afloat. Two years later, data show that the money indeed served as a lifeline for many hospitals that might not have withstood the onslaught of the coronavirus — but the funds also exacerbated the gap between the industry’s haves and have-nots, disproportionately rewarding wealthy hospitals that did not need the money as urgently. Many institutions reported strong profits and pursued growth strategies without pause.

“The rich got richer,” said North Carolina State Treasurer Dale Folwell, a Republican who is a critic of the business practices of Atrium and other hospital chains in the state. “It’s a transfer of wealth to them from taxpayers.”

The hospital aid was part of nearly $6 trillion that Congress approved in three bills over the past two years as Washington scrambled to keep up with the pandemic. The loans, grants, direct checks and other emergency assistance added up to more than the entire federal budget in the fiscal year before the coronavirus arrived, creating a unique and lasting strain on policymakers to ensure that the funds have been put to good use. The investments helped respond to the virus and pull the economy out of its worst crisis since the Great Depression — but tracking it all down to figure out how it was used has emerged as a major problem.

Folwell’s office released a report Wednesday documenting hundreds of millions of dollars that North Carolina’s largest hospital systems accepted from the federal government’s Provider Relief Fund, contrasting it with their strong financial performance during the crisis. Folwell said in an interview with The Washington Post that the hospitals should have plowed the windfall into more charity care, lowered prices or dipped into reserves to cover pandemic costs and sent the money back to the government.

Atrium said the money it received from the Pandemic Relief Fund was crucial to providing covid care, plugging holes in its operating budget and avoiding furloughs of medical staff at the peak of the crisis. Atrium used the money in innovative ways, it said, by creating a “hospital at home” program to care for covid patients remotely, and sending roving clinics into disadvantaged neighborhoods of Charlotte to provide tests and vaccines. It provided care to large numbers of low-income Medicaid patients, it said, even while experiencing sharp declines in revenue.

“We turned off the tap on the revenue, and so those funds were what helped us to continue to deliver care to our patients,” said Christine Sibley, assistant vice president of reimbursement. “We were very fortunate that we were strategic enough to respond to the pandemic without affecting the quality of care.”

Hospitals were required to use the federal money for covid-related costs. But receipt of the money had a beneficial effect across their balance sheets, permitting hospitals across the country to log stronger profits and avoid serious damage to reserves of cash and investments, said Ge Bai, a professor of accounting and health policy and management at Johns Hopkins University who advised the North Carolina treasurer’s office in preparation of its report.

“Now that the dust settles, we realize many hospitals got more than what they needed,” she said.

North Carolina captures the effects in microcosm. Seven hospital systems in the state accepted a total of $1.5 billion in federal emergency aid, while collectively boosting their cash and investment reserves by an additional $7.1 billion, the state treasurer’s report said. Atrium had the largest reserve in the state by the end of last year, the report said, with a $9.3 billion stockpile. Relief fund rules prohibited using the money to pay executives earning more than $197,300 a year; Atrium paid its chief executive, Eugene A. Woods, with other revenue, the company said in a statement to The Post.

There’s little dispute that the $178 billion Pandemic Relief Fund, authorized by Congress in the CARES Act at the beginning of the health crisis in late March 2020, helped keep thousands of hospitals and physician practices across the country solvent in a time of extreme fiscal duress.

The pandemic slammed hospitals financially by forcing a hiatus in surgical procedures and causing spikes in the prices of scarce supplies like personal protective equipment and ventilators. Hospitals worked around the clock on innovative but costly ways to deliver care in their communities, such as erecting tents for tests and vaccine sites in parking lots. Staff shortages added extraordinary labor costs, including overtime spending and paying expensive contract nurses.

Looking back, though, some hospital systems could have survived the pandemic by tapping into their deep reserves.

The initial federal bailout formula, hastily put in place by the Trump administration to help hospitals cope with these burdens, bestowed a disproportionate share on wealthier hospitals. Distribution of the first $50 billion was calculated based on each hospital’s 2019 Medicare billings and 2018 overall patient revenue, including payments from private-insurance companies, which pay the highest rates.

That put weaker safety-net hospitals, which serve higher numbers of uninsured people and low-income Medicaid patients, at a disadvantage. Medicaid typically pays hospitals less than Medicare and private insurance.

Randolph Health is surrounded by a mostly rural population in Randolph County that is poorer and sicker than the rest of the state, with high rates of diabetes and opioid addiction, and a higher-than-average percentage of Medicaid patients.

“The big boys got most of the money. Do you think these guys need more money? Come on,” said Michael Sarian, the hospital executive whose company, American Healthcare Systems, paid $10 million for Randolph Health last year in a bankruptcy auction. “They have all these excess funds. What are they going to do with them?”

The North Carolina Hospital Association said it would have been imprudent for its member hospitals to pay for emergency costs by dipping into reserves, which are important to maintaining high bond ratings that keeps the cost of borrowing low.

“I realize its politically sexy to talk about reserves, but the reality is that to do what the treasurer has asked would put that entire state bond rating in jeopardy,” said Cody Hand, senior vice president and deputy general counsel at the association.

Large, urban areas also saw disparities in the distribution of covid money. In New York, for instance, the gap between two large hospitals in the same Lower Manhattan neighborhood stand out, according to academic researchers at the University of Chicago, Rutgers University and Taipei University who published a study about the differences.

NYU Langone Medical Center — the flagship hospital of a health system with high numbers of private-insurance and Medicare patients — received $319,557 in Provider Relief Fund money per bed for its 1,468 beds, the hospital said. Bellevue Hospital, which is run by the city and has a high Medicaid patient population, received $259,000 in relief money per bed for its 527 beds, the researchers found.

The government made the lopsided distribution even though NYU Langone is far wealthier. Using a common measure to compare hospitals’ relative financial health, the researchers found that NYU Langone had 118 days cash on hand, compared to Bellevue’s days cash on hand of less than one.

Other researchers have made similar findings. “Those that treated majority white, majority private-insured got more financial assistance than those that didn’t,” said Christopher Whaley, a policy researcher at the RAND Corporation and professor at the RAND Pardee Graduate School. The Trump administration in 2020 used a broad brush to distribute the cash rapidly, he added.

Some hospitals returned the money, notably, the for-profit chain HCA, which sent back $1.6 billion in Provider Relief Fund payments.

Later distributions were tailored to favor hospitals hit with the most covid patients, as well as those in rural communities and with large Medicaid populations. But those rounds of assistance were each smaller than the initial $50 billion, which automatically arrived in the bank accounts of hospitals and physician practices without even requiring an application.

“We knew the providers were experiencing dire circumstances and higher costs and losing revenue as a result of the pandemic, and this was a lifeboat to get them through this time period,” said Thomas Engels, the former Trump administration official who ran the agency within the Department of Health and Human Services that was in charge of coming up with a formula to distribute the money.

“Congress wanted us to get those funds out. The president wanted us to get those out right away,” Engels said. The agency that Engels ran, the Health Resources and Services Administration, consulted with the American Hospital Association and other prominent industry groups to devise its formula, he said.

The American Hospital Association, the Washington lobbying group for U.S. hospitals, responded to complaints about the Provider Relief Fund by noting that hospitals incurred extraordinary costs during the pandemic. The AHA has asked Congress this year to extend the deadlines for repayment of another form of aid hospitals received, advanced Medicare payments.

“Each hospital and health system came into the pandemic with their own unique financial situation. Moreover, each and every one of them played an integral role in caring for patients and protecting their communities,” the association’s president and CEO, Rick Pollack, said in a written statement.

“Cherry-picking financial data is not reflective of the many immense struggles and challenges facing the hospital field,” he said, “including a workforce shortage crisis, along with skyrocketing input costs for supplies, equipment, drugs and labor, and near-historic levels of inflation.”

Critics say the result was a bailout that helped large systems the most, enabling further consolidation.

“It increases the war chest to go buy up independent hospitals or provider groups … and the whole process gets even worse,” said Dale Owen, leader of a large physician group in Charlotte that broke away from being owned by Atrium and become independent.

Concentration of health care delivery in individual U.S. cities often fuels higher costs because it gives hospitals and their allied physicians greater negotiating clout; they can command bigger reimbursements from insurance companies, which is reflected in ever-rising insurance premiums, according to health care experts.

Atrium in 2020 completed a merger with Wake Forest Baptist to gain a coveted affiliation with a medical school and expand operations in North Carolina, South Carolina, Virginia and Georgia. In 2021, Atrium sealed its takeover of three community hospitals headquartered in Rome, Ga., agreeing to pump $650 million into the out-of-state facilities.

Then last month, Atrium announced it intends to merge with Advocate Aurora Health, which operates hospitals in Illinois and Wisconsin, creating a national-caliber system that will serve 5.5 million patients at 67 hospitals.

Atrium calls these tie-ups “strategic combinations” rather than mergers, because Atrium is not taking ownership of the real estate and assets of its partners. It says the growth will improve the quality of patient care. Atrium helps the smaller hospitals in its system thrive by integrating care with its bigger flagship hospitals, it said.

“We are a backbone for those smaller organizations,” said Sibley, Atrium’s assistant vice president.

Similar dynamics played out across the country.

Yale New Haven Health System, which operates five hospitals in Connecticut and Rhode Island, reported in public-disclosure documents that it received $476 million from the Provider Relief Fund and federal emergency aid routed through the state. Its investment holdings rose by a billion dollars to $4.5 billion by the end of its last fiscal year. In February, it announced it plans to acquire three hospitals, in Waterbury, Manchester and Vernon, Conn., for an as-yet-undisclosed amount.

The covid relief funds “did not fully cover the intense costs associated with caring for patients so dramatically impacted by this pandemic over more than two years,” spokeswoman Dana Marnane said in an email. The health system’s expansion, she added, “delivered real value back to the communities it serves.”

Intermountain Healthcare, based in Salt Lake City, grew from 24 hospitals to 33 in five states with a merger completed this year. It received $220 million from the Provider Relief Fund. And Georgia’s Piedmont Health, which received $239 million in federal pandemic money, acquired seven hospitals in the Peach State. Intermountain and Piedmont did not respond to a request for comment.

Cody, at the North Carolina Hospital Association, said mergers are part of long-term strategies that are unrelated to the short-term finances of covid care.

“These nonprofit systems are looking for ways to spread their risk,” he said. “We were trying to figure out how to survive past covid.” He added that growth strategies are oriented to business strategies looking ahead 10 to 20 years and said the timing of mergers as Provider Relief Fund money rolled in likely was a coincidence.

With the Provider Relief Fund winding down, and the declining stock market this year, hospitals experienced a financial downturn in the first quarter, he said.

Randolph Health is among a dwindling number of independent hospitals in North Carolina. Its financial struggles can be traced to the economic decline of Randolph County: Furniture manufacturing and textile production, the mainstays of the economy for decades, moved overseas in the last quarter-century. Well-paying jobs dried up.

“It was death by a thousand cuts, as our economy got more difficult. People who had health insurance didn’t have health insurance any more,” said Lisk, the former board member. “About 25 percent of our patients were fully insured. The rest were either Medicaid, Medicare or nothing.”

The hospital’s geography also posed problems. Larger hospitals with advanced surgical capabilities and ones designated as trauma centers sit less than an hour away in Winston-Salem, Greensboro and Raleigh-Durham. They siphoned away patients for the most lucrative procedures. Randolph poured money into a new emergency room and cancer center in the past 20 years, but the debt for those improvements put a heavy burden on the bottom line. More than two-thirds of its 145 beds were empty on average in recent years.

Randolph couldn’t woo any merger partners, said Lisk. “They didn’t need to take on something that was going to be a cash drain to their system.”

The pandemic hit in early March just as Randolph Health’s lawyers submitted its filings in U.S. Bankruptcy Court in Greensboro. The threat of infection forced the hospital to curtail operations, including surgeries that could be rescheduled, cutting another $13.5 million out of its revenue in 2020 and 2021. Increased costs for personal protective equipment, drugs and staff drained another $5.5 million.

Now the community is rooting for Sarian, the new owner who won the hospital with a $10 million bid in a bankruptcy auction. To fuel his turnaround plan, Sarian will be using a combination of his own money plus part of a $20 million state pool for distressed hospitals. Saving the hospital would be easier if the federal government had distributed covid money more equitably, Sarin said. As it is, the cash from Congress for Randolph fell $4.5 million short of total covid expenses.

“It could have been a lot fairer to inner-city hospitals and rural hospitals,” he said. “The big systems, they don’t need the money.”