While acute care hospitals in California saw declines in inpatient admissions, outpatient visits, and emergency visits amid the COVID-19 pandemic, total inpatient and outpatient volume in 2020 was down by only 5 percent from 2019 levels, a report from the California Health Care Foundation finds.

Based on data from 355 acute care hospitals in the state, the report, The Financial Impact of COVID-19 on California Hospitals: January 2020 Through June 2021 (19 pages, PDF), found that after the governor issued a "shelter-in-place" order and requested that hospitals discontinue elective admissions and nonurgent care, hospital discharges and outpatient visits fell 20 percent and 29 percent, respectively, on a year-over-year basis in the second quarter and remained in negative territory through the end of the year. Data from the first half of 2021 show that hospital utilization is still below pre-COVID-19 levels — inpatient admissions are down 7 percent and emergency department visits are down 23 percent compared with 2019. Given those trends and recent increases in COVID-19 case rates, the report's authors note that hospital utilization in 2021 will likely remain below 2019 levels.

The study also found that while hospitals' net income fell to $3.47 billion in 2020 from $7.96 billion in 2019, net patient revenue rose $1.3 billion, or 1 percent, driven largely by increased revenue from the Medi-Cal program. Even as net patient service revenue from third-party payers — the largest segment — declined by 3 percent, net revenue from Medicare and Medi-Cal increased 2 percent and more than 10 percent, respectively. According to the report, the increase in Medicare net revenue can be attributed in part to the 20 percent increase in reimbursement for diagnoses related to COVID-19 patients and a temporary halt to the 2 percent Medicare payment reduction, while the increase in Medi-Cal revenue was driven in part by various supplemental hospital payments for prior-year services unrelated to COVID-19.

At the same time, the pandemic pushed total operating expenses up by 8 percent, in part as a result of "shortages of almost all needed inputs — labor, equipment, and COVID-19-related PPE" — and higher case-mix severity and average length of stay, including longer-stay COVID-19 patients. "The biggest negative effects of COVID-19 on hospital net incomes came not from volume declines but from rising operational costs," the report's authors write. "Most of these increased expenses are likely tied directly to the added costs of providing the necessary resources and capacity to safely operate during the infectious COVID-19 pandemic."

"An important part of the story of hospital finances in 2020 was the role of the federal government in providing subsidies to hospitals in anticipation of increased COVID-19-related costs and reduced volume due to shutdowns," the authors conclude. "The data gathered for this report suggest that these subsidies were critical in stabilizing the financial status of many California hospitals."