CARES: It isn’t for everyone

Here is how CARES applies to hospitals and life sciences manufacturers.

Kristin C. Pothier

Kristin C. Pothier

Global and National Healthcare and Life Sciences Strategy Leader, and Global Deal Advisory Leader, Healthcare and Life Sciences, KPMG LLP

+1 617 549 2779

Jessica Lin

Jessica Lin

Managing Director, Healthcare and Life Sciences Strategy, KPMG LLP

+1 212-954-5627

Jeffry Whitcomb

Jeffry Whitcomb

Managing Director, Healthcare and Life Sciences Strategy, KPMG US

+1 813-301-2121

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act is an essential step in providing economic relief to U.S. businesses impacted by COVID-19.  Still, it is by no means a panacea. Indeed, it leaves many healthcare and life sciences organizations struggling to find support. These organizations will need to do more than rely on CARES to ensure that they are positioned to survive during and after the COVID-19 emergency. Briefly, here is how CARES applies to hospitals and life sciences manufacturers.

Hospitals. CARES will provide approximately $100 billion for hospitals that are caring for COVID-19 patients, Medicare advance payments, DSH payment reduction delays, and Medicare sequestration relief. This support averages $108,000 per U.S. hospital bed, which may not be sufficient as hospitals see a significant shift from commercially insured patients to Medicaid and self-pay patients, as well as a shift from higher-margin surgeries that are deferrable (e.g., ophthalmic surgery or hip implants) to higher cost COVID-19 patients, who are also likely to have lower reimbursement potential. Furthermore, utilization of professional and ancillary services that help improve hospital margins is also falling and hospitals will struggle with high labor and other fixed costs that cannot be easily addressed in these challenging times.

Another issue: the smaller and rural hospitals that may need CARES funding the most are also the hospitals with the least bandwidth to work through the CARES application process.  While navigating through this process, all hospitals will need to stay informed about protocols and guidance related to applying for and distributing CARES funds to ensure that they maximize the opportunities provided through the CARES program so they are positioned financially to continue to treat patients.

Life Sciences Manufacturers of Products Used to Combat COVID-19. For manufacturers that are developing or manufacturing products used to diagnose, prevent, or treat COVID-19, CARES offers many opportunities, including about $16 billion for Strategic National Stockpile purchases (including items such as personal protective equipment, ventilators, and medical supplies for federal and state response efforts). Another $11 billion is earmarked for diagnostics, treatments, and vaccines. Organizations should evaluate their pipeline and commercialized products to determine which drugs, diagnostics, devices, and services could be repurposed to combat COVID-19. At the same time, these manufacturers must ensure that the life-saving products that are not directly used to combat COVID-19 are not neglected or disrupted by the current focus on COVID-19.

Life Sciences Manufacturers of Products that are Not Used to Combat COVID-19. Life sciences companies that are not developing products to combat COVID-19 are likely experiencing delays in clinical trial enrollment and regulatory approvals. And, because of the COVID-19 lockdown, conferences and in-person meetings are canceled and demand for medical devices and drugs for deferrable procedures is falling, all of which is affecting sales and marketing efforts. Unfortunately, CARES will not directly benefit such organizations, which may need to evaluate and potentially restructure current businesses to function during COVID-19 and prepare for the eventual economic recovery. A proactive response focused on customer centricity, pipeline management, revenue and cash forecasting, scenario planning, and supply chain resilience will allow you to manage your business through these turbulent times successfully.

Learn more about how KPMG is helping our clients navigate the challenge COVID-19 presents here.

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