Beebe’s irony: Fewer COVID-19 patients may pinch finances

With the coronavirus crisis bearing down on Beebe Healthcare, what started clearly as a strong fiscal year has now morphed into murky uncertainty.

Ironically, Beebe would be better off financially if the anticipated surge in COVID-19 patients actually materializes. Not good for the community, but at least treating those cases would result in direct reimbursement from the government. Artificially holding down inpatient census by postponing surgeries and other complicated procedures, in order to be prepared for the surge while maintaining full staffing, is creating a heavy expense burden that won’t necessarily be offset with reimbursements. Whether Beebe will end its current fiscal year in red ink or black ink will depend on how the virus treats Beebe’s eastern Sussex population.

“We don’t know how many COVID patients we will see,” said Beebe’s Chief Financial Officer Paul Pernice in an interview this week. “We hope we will start to see declines. But the longer it takes for the rising trend to change, the better for revenues. We received a $10 million grant from the government’s provider relief fund, which is designed to help with expenses related to treating COVID patients and to help offset revenues lost – surgeries lost – due to being prepared for treating COVID patients. That will help, but I don’t think it will cover what we have lost.”

Pernice said Beebe has also received a $71 million loan out of the federal government’s corona package as an advance on a year’s worth of anticipated Medicare payments. “But that’s a loan, not a grant,” said Pernice. “We have to pay it back in 12 months, and we have to start paying it back in four months. That's why it’s important to see our patient volumes restore themselves over that time frame.” 

Dr. David Tam, Beebe’s chief executive officer, is just six weeks into his new job. He sees Beebe walking between two different situations.

“Our COVID patient numbers are changing right now,” said Tam. “They’re still rising here – that’s patients admitted who are COVID positive or with symptoms consistent with COVID. But those numbers are not rising as fast as they were. In the meantime we’re trying to understand the governor’s and the president’s views on reopening the economy and how that will affect the nation, the state and southern Delaware. We’re managing this on a daily basis. We’ve actually done some surgeries and catheterizations that have become urgent as time has passed; and, of course, delivering babies.”  

Surgeries more urgent

“It’s been six weeks since many of these so-called elective surgeries have been postponed, and they’re getting to be critical,” said Tam. “They are elective in the sense that they are not emergent, that is, someone’s life is not immediately on the line. But that doesn’t mean they are unnecessary surgeries. If the COVID patients don’t come and trends keep leveling out, we need to start bringing back those other patients as quickly as possible. These people are quite sick.” 

Tam said Sussex County’s older population with its risks of existing conditions is part of what skews the scenario in Sussex relative to their vulnerability to COVID. “These are the same ones who need urgent surgery.”    

Tam said there has been no corona impact so far on Beebe’s expansion plans, with construction underway in the Millville area for the emergency department and cancer center, and at Beebe’s Route 24 campus where the new specialty surgery center is quickly rising. “We expect to have the South Coastal facility open in April or May, but depending on corona, we’ll see how we start using that initially.”

Tam said there is no intent to consider furloughing or layoffs of employees to address financial concerns. “My goal in the month and a half I’ve been here is to ensure a stable workforce for the work we want to do – for the stability of our community and our Beebe organization. Part of that goal was to take time to crosstrain people to work in other areas as may be needed for the COVID situation. All that training has been going on, but we’re about done with that part. But we’re still needing people to face the potential COVID surge. If COVID hits us and peaks at a higher number than now, we will need the people. As always, we have to staff to the volume of care that we have to provide.”

Beebe Healthcare finished its 2019 fiscal year that ended last June on solid financial ground. Strong inpatient and outpatient volume growth over the previous year generated a 3.5 percent operating margin when the fiscal year’s books were closed. That margin – much stronger than margins realized by other healthcare organizations of Beebe’s size across the country – translated into millions of dollars of profit needed to fund the more than $250 million expansion project currently underway.

“That gave Beebe a good head start going into the 2020 fiscal year,” said Pernice. Now into its final three months, the 2020 fiscal year will end June 30. Pernice said how the year ends will depend on corona. “There are different models about when and if there will be a surge here, and how long it will last. If there’s a slight surge and it’s short in duration and we’re back to normal by summer, we could end FY2020 with an operating loss. But if there’s a higher and longer surge, which will bring in greater reimbursements, that could change our year-end operating margin into positive territory.”

Realistically, said Tam, the operating revenues Beebe needs may not come when needed or be as much as needed. “That’s why the government loaned us the cash. We won’t be insolvent. But we must be very agile to reduce the COVID peaks and ready to change to bring our normal volume back as quickly as possible. As we watch corona numbers and what the governor is thinking about in terms of reopening, we have to be ready to meet whatever surge comes and also be able to pivot quickly when the picture becomes clearer, to maximize our capacity for the well-being of our existing patients and our own financial well-being.”