The Impact of COVID-19 on Hospitals Financial Performance: Evidence from California Hospitals

Abstract

Goal: On March 19, 2020, the Governor of California, Gavin Newsom announced a statewide “shelter-in-place”, issued an executive order for hospitals to pause performing elective procedures, and requested state hospitals to increase inpatient bed supply to provide sufficient space to treat Covid-19 patients. These orders were lifted one month later on April 22, 2020. However, these changes and the ongoing effect of Covid-19 may have both immediate and long-term impacts on hospitals’ revenue and expenses. The purpose of this paper is to explore the impact of the Covid-19 pandemic on California hospital financial performance based on the structure-conduct-performance (SCP) framework and resource-based view (RBV) of the firm. Methods: A linear mixed-effects model was used to capture the effect of Covid-19 on financial performance over time (from 2017 Quarter 1 to 2020 Quarter 4) of the repeated measurements for each hospital, with the interaction from resources and ownership. Principal Findings: Covid-19 had a negative impact on hospital operating margin (OM) (b=-.03, p<.05), but not for the total margin (TM). We found a negative moderating role of total capital expenditure (b=-.00, p<.10) on hospital TM, but not for OM. We observed a positive moderating effect of for-profit hospitals for both OM (b=.04, p<.01) and TM (b=.02, p<.10) when compared to not-for-profit hospitals. Practical Applications: Hospital managers need to understand the impact of Covid-19 on hospital financial performance and find out the ways in helping hospitals recover from the pandemic and prepare for future pandemics or emergencies.