Study finds racial bias in the government’s formula for distributing Covid-19 aid to hospitals

The federal government has systematically shortchanged communities with large Black populations in the distribution of billions of dollars in Covid-19 relief aid meant to help hospitals struggling to manage the effects of the pandemic, according to a study published Friday.

The study in the Journal of the American Medical Association found that the funding inequities resulted from a formula that allocated large chunks of a $175 billion relief package based on hospital revenue, instead of numbers of Covid-19 cases or other health data.

The effect was to distribute more money through the federal CARES Act to large hospitals that already had the most resources, leaving smaller hospitals with large numbers of Black patients with disproportionately low funding to manage higher numbers of Covid-19 cases.

“We are finding large-scale racial bias in the way the federal government is distributing” the funds to hospitals, said Ziad Obermeyer, a physician and a co-author of the study from the University of California, Berkeley.

“If you take two hospitals getting the same amount of funding under the CARES Act, the dollars have to go further in Black counties than they do elsewhere,” he said. “Effectively that means there are fewer things the health systems can do in those counties, like testing, buying more personal protective equipment, or doing outreach to make sure people are being tested.”

A spokesperson for the U.S. Department of Health and Human Services, which was responsible for distributing the funding, said in a statement that the department allocated the money in a “data-driven manner” in order to provide relief to hospitals swiftly in the weeks after the legislation was passed. “In choosing to act quickly, HHS adopted revenue as a measure of how to distribute funds across health care facilities and providers of different sizes and types,” the statement said. “While other approaches were considered, these would have taken much longer to implement.”

The spokesperson added that while Congress did not direct the department to examine the finances of the recipients, it recognizes the financial hardship many hospitals are facing and will make targeted distributions to those disproportionately impacted.

The study adds to a growing body of evidence showing that communities with large numbers of people of color are getting hit harder during the pandemic, with higher rates of infection than wealthier white communities. Not only do those communities have higher numbers of cases, but their hospitals already have less money to pay for additional clinical resources to care for patients and fund education and prevention efforts.

The CARES Act was passed in March to counteract the economic devastation wrought by the rapid spread of the coronavirus. In addition to direct cash payments to Americans and increased unemployment benefits, the $2.2 trillion stimulus package also included $175 billion in relief aid to hospitals.

The money was meant to bolster the balance sheets of hospitals that were hit hard by the pandemic. In addition to the increased costs of treating infected patients, hospitals also lost huge sums of money because of canceled elective procedures and a sudden drop in visits to their facilities.

The study published Friday found, however, that the federal funding formula resulted in allocations that were largely unrelated to the level of need in counties around the country. The most influential factor used in the funding formula was past revenue received from Medicare. While that makes sense on one level — the biggest hospitals with the most patients would get more money — it results in a distortion when the funding is compared to the actual health needs on the ground.

The researchers compared the funding provided to communities with more granular county-level data, including numbers of cases and deaths due to Covid-19; rates of illnesses such as kidney disease and high blood pressure that tend to exacerbate the effects of the virus; and data on the underlying financial health of the hospitals in the counties.

Overall, the study found, disproportionately Black counties received $126 per resident more funding than other counties, but that differential was generally not enough to offset the higher level of need in those places. Among counties that received the same funding, disproportionately Black counties had a higher level of Covid-19 disease burden, higher rates of chronic illness, and worse hospital finances.

“In all the categories, the funding was not well-aligned with those needs because of the choice to allocate proportional to revenue,” Obermeyer said. “Reallocating that funding according to where it’s most needed would be more equitable in the sense that it would get more money to Black counties. It would also be more economical because you’d be getting the resources to where they’re most needed.”