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Center for Biosecurity of UPMC Estimates the Financial Effect of a Flu Pandemic on Hospitals

By Eric Toner, M.D., December 7, 2007

In an article just published in the fall issue of the Journal of Healthcare Finance, this author and colleagues from the Center for Biosecurity examine the potential financial impact of a flu pandemic on U.S. hospitals [1]. We estimate that during a severe pandemic, just two costs—that of uncompensated care plus the cost of deferring elective surgeries—could total $784,592 for an average hospital, adding up to approximately $3.9 billion in pandemic flu-related financial losses across all of the nation’s hospitals. 

Using the Department of Health and Human Services’ (HHS) pandemic planning assumptions [2], national data from hospitals [3], and the Centers for Disease Control and Prevention’s (CDC) hospital modeling software, FluSurge 2.0 [4], two scenarios were modeled: one based on a moderate pandemic, and one on a severe pandemic. For both scenarios, we assumed that elective surgery admissions would be replaced by flu patients.

We obtained national data on the average number of elective surgeries performed, the resulting lengths of stay, and the contribution margins (revenues minus variable costs). Using the FluSurge output, we calculated the number of surgeries that would have to be canceled to free up beds for flu patients. We also obtained the average case volume, length of stay, revenues, costs, and contribution margins for selected flu-related diagnoses.

For the moderate pandemic scenario, we calculated that no surgeries would have to be cancelled. However, in the severe pandemic scenario, replacing elective surgery patients with flu patients resulted in a $354,000 net loss for the average hospital.

In addition, hospitals would expect to see an increase in uncompensated care during a pandemic. The model projects that cost would average $430,607 during a severe pandemic. Given significant differences in costs, reimbursements, and patient mix among hospitals, the estimates for an individual hospital may differ significantly from these national averages.

Actual losses may be significantly higher than this study suggests because other financial effects were not accounted for, such as the effects of a pandemic on overhead or non-influenza margins. Costs could increase because of overtime, supply shortages, and increased lengths of stay. On the other hand, some costs could decrease if hospitals were to discharge non-flu patients early or increase patient-to-staff ratios. In addition, other revenue generating activities, such as outpatient services, which are also likely to be affected by a pandemic, were not addressed in this study.

Planning Implications

Ultimately, this study demonstrates that the expected negative financial impact on hospitals of a severe pandemic is significant. Financial loss due to patient care activities is not reimbursable to hospitals under the Stafford Act. Therefore, hospitals should include their financial personnel in pandemic planning. In addition, federal policymakers should consider contingencies to ensure that hospitals do not become insolvent as a result of a pandemic.

References

  1. Matheny J, Toner E, Waldhorn R. Financial Effects of an Influenza Pandemic on U.S. Hospitals. J Health Care Finance 2007;34(1):58–63. http://www.healthbusinessandpolicy.com/
    Documents/JHCF_MATHENY_34_1_07_058_063.pdf
    . Accessed December 6, 2007.

  2. Pandemic Planning Assumptions. Pandemic Influenza Plan: U.S. Department of Health and Human Services, 2005. http://www.pandemicflu.gov/plan/pandplan.html. Accessed December 6, 2007.

  3. Hospital Statistics: 2007, Washington, DC: American Hospital Association, 2007.

  4. FluSurge 2.0. Centers for Disease Control and Prevention. http://www.cdc.gov/flu/tools/flusurge/. Accessed December 6, 2007.