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The pandemic has had dramatically different consequences for the finances of payers and providers.
What a strange time it has been for American healthcare payers and providers.
When the nation’s governors issued stay-at-home order and advisories in March and April, routine healthcare came to a grinding halt. Elective procedures were canceled or postponed. Hospitals had created capacity for what many expected to be a huge influx of patients with COVID-19 who could overwhelm their finite supply of hospital beds, intensive care units, respirators and personal protective equipment. In some hotspots and at some hospitals in those hotspots, that influx occurred, and there was another surge of cases in some parts of the country in July. But in other places and for many providers, the COVID-19 pandemic led to a precipitous decline in use and with that drop, a drop in revenue.
About 1.4 million healthcare workers lost their jobs in April. The American Hospital Association said that collectively, the country’s hospitals suffered $200 billion in financial losses because of COVID-19 from the beginning of March through the end of June. Lou Ellen Horwitz, CEO of the Urgent Care Association, says urgent care centers were a “ghost town” in March and April. Based on its financial and other data from a representative sample of 800 hospitals, Kaufman Hall said that hospital operating margins fell by nearly 300% in April 2020 relative to April 2019. In its August “flash report” on hospitals, the Chicago-based consulting firm said hospital operating margins were down 96% compared with the first seven months of 2019.
Of course, for payers the lack of utilization had just the opposite effect on their finances. By and large, premiums dollars kept on flowing in and claims, and therefore healthcare expenditures, disappeared. As a result, insurers enjoyed huge margins, especially in the second quarter and likely in the third, although probably not as large. Research by Adam Block, Ph.D., an assistant professor of public health at New York Medical College, on the Managed Healthcare Executive® website shows that net operating income in the second quarter of this year had increased by an average of 136.7% relative to the second quarter of 2019 for five publicly traded insurers (UnitedHealth Group, Anthem, Cigna, Centene Corporation and Molina Healthcare).
“It makes a lot of sense because if all of the elective procedures went away and we are all still paying (the) same premiums that we were…earlier in the year, pre-COVID(-19), that money all stays as retained earnings for the health plans,” Block said in an interview.
Many providers have received federal funding through the Paycheck Protection Program and Health Care Enhancement Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allocated $175 billion for healthcare providers. Kaufman Hall’s calculation of the relative decrease in operating margin for the first half of the year compared with 2019 goes from 96% to 28% once CARES Act money is included. That’s still a significant drop in operating margin, but it also shows that the CARES Act has made a significant difference.
Relatively early on in the pandemic, many payers announced that they were helping out struggling providers by making advance payments with the short-term goal of shoring up their liquidity. UnitedHealthcare, for example, made $2 billion in funds available. Premera Blue Cross in Washington state announced advance payments of $100 million, and Blue Cross and Blue Shield of Minnesota pushed out $80 million.
Joseph Restuccia, Dr.PH., M.P.H., a professor at Boston University’s Questrom School of Business, says that payers “fronting this money” to providers is “the right thing to do from an ethical, social justice and moral perspective.” He also sees it as an opportunity for payers to develop closer relationships with providers and support the move toward value-based care and payment arrangements that include some form of capitation.
More recently, payers have been announcing a flurry of “premium relief” measures for employers and individuals, often in the form of a 10% to 25% discount on a future month’s premium. UnitedHealth publicized a plan in May about premium credits and the waiving of cost sharing that it said added up to $1.5 billion. Anthem announced premium discounts in June that according to the company added up to $2.5 billion. Many of the Blues’ plans are on the premium-relief bandwagon; for example, Blue Cross and Blue Shield of Minnesota announced a plan in August that included $38 million in premium relief and $31 million in advanced 2019 medical-loss ratio (MLR) payments. “It is doing our part to help a community in need,” said Craig E. Samitt, M.D., MBA, company president and CEO, of the Minnesota Blues’ plan.
Sabrina Corlette, J.D., founder and co-director of the Center on Health Insurance Reforms at Georgetown University’s McCourt School of Public Policy, says insurers are well aware that legislators and policymakers know they have had a very good year financially so far. “I think to the extent that they can generate some good will and some good public relations by offering premium holidays and premium discounts that is helpful to them.” Corlette says MLR calculations may also be a factor. Under the ACA, insurers are required to spend 80% of the premium dollar on healthcare in the individual and small group market and 85% in the large employer market. With healthcare expenditures down, so are MLRs. If an insurer can boost their MLR by getting a bit less in premiums revenue, that means paying back less in MLR rebates later, she explains. “I think a lot of carriers are thinking, ‘We are going to owe this money back to the policyholders anyway’ and right now people are suffering, people maybe have lost their jobs or lost income,” says Corlette.
Getting patients to come back
The uptick in COVID-19 cases in July added some wobble to the uncertainty about the epidemic’s course, but patients are coming back and getting healthcare services. Horwitz, whose association represents about 4,500 urgent care centers, says her members are busier than ever with the normal run of problems seen at urgent care centers along with testing and care associated with COVID-19. Kaufman Hall’s August report showed increases from June to July in almost every measure of volume (discharges, patient days, operating room minutes and so on) and relatively modest differences between July of this year and July 2019.
One exception is emergency department (ED) visits, which according to the Kaufman Hall tally are down by about 17% from last year. Jim Blake, Kaufman Hall managing director and chief author of the company’s flash reports, says the reasons for decline in ED visits are still unclear, but one possibility is that people are choosing to go elsewhere for less serious emergencies or are getting care through telehealth.
One wildcard in the resumption of routine, in-person healthcare services is the public’s perception of safety regarding visiting a doctor’s office or hospital. Many providers are going to great lengths to make their facilities as safe as possible with sanitizing, spacing and parking lots that are now doubling as in-your-car waiting rooms. More than a few providers are using social media to show off their efforts in hopes of assuaging fears. But they are working against a baseline of apprehension. When the Society for Cardiovascular Angiography and Interventions conducted a survey this spring, it found that about a third (36%) of the respondents viewed a hospital visit as “risky behavior,” and 61% reported believing they were somewhat or very likely to acquire COVID-19. Granted, much has changed since this spring. Presumably the worry has subsided somewhat. But if the pandemic has a second wave, as many expect, and a reliable vaccine isn’t available, the fear will likely to return.
Ashraf Shehata, national sector leader for healthcare and life sciences at KPMG, the consulting firm, says the only way to make patients feel safe is to implement protocols designed by local and federal public health bodies and educate patients and community leaders about these efforts. That is what Beth Israel Lahey Health, the eastern Massachusetts healthcare system, did back in May when it emailed patients about what to expect during in-person visits:
Shehata also advises hospitals and practices to call patients to welcome them back for routine and preventive care, such as mammograms and colonoscopies. To increase a sense of safety, patients might be greeted at the entrance of a facility by a “navigator” who walks with them to their appointment, says Restuccia. There are also apps for guiding patients.
But this fall, healthcare providers are facing a whole new set of troubles on top of those posed by COVID-19. The prospective of a second wave of COVID-19 and a serious flu season is a source of dread, although the public health measures designed to reduce COVID-19 transmission (social distancing, masks, school- and work-from-home arrangements, the lack of international travel) could help make for a mild flu season. Hurricane Laura weakened fairly quickly and turned into a tropical storm, but there is still a lot of the hurricane season ahead.
“All of these things will continue to hamper and affect (providers’) ability to respond and bring back patients,” says Shehata.
Employment and the overall economy are another large variable in the complicated equation that will determine healthcare use and the return of patients. COVID-19 is proving to be a lumpy pandemic with disproportionate effects on certain populations (older people, males, Black Americans) and certain parts of the economy (restaurants, airlines). Massive job loss may lead to millions of people losing employment-based coverage, although many of the disappearing jobs are on the lower rungs of the economy and didn’t have health insurance as a benefit.
Moreover, the ACA does provide some cushion against the loss of health insurance. Thirty-nine states expanded Medicaid under the 2010 law, and roughly 11 million Americans have purchased coverage on the ACA exchanges. Commentators have noted that the ACA could be one of the many factors that will stave off a more serious economic downturn from COVID-19.
The death toll is too high (more than 180,000 in the U.S. and 830,000 worldwide) and the disruption too great to sound any kind of celebratory notes about COVID-19. Still, the pandemic has had unintended consequences that could have long-term benefits for providers and payers — and let’s not forget patients. Probably the most talked about topic is the sudden, why-didn’t-we-do-this-sooner adoption of telehealth and remote care.
Others see the payer-provider
dynamics of the pandemic accelerating the adoption of value-based care. Corlette says it makes logical sense that some sort of capitated payment would become more attractive. But she also notes the lack of data on any shift to value-based care and a long-standing reluctance to take on downside risk. “I just haven’t heard that there has been a real shift on that front, but this may just be one of those things that takes time to play out.”
Keely Macmillan, senior vice president of policy and solutions management at Archway Health, a Boston consulting firm that specializes in bundled payments and value-based care, is more sanguine.
“Providers in capitated or semi-capitated arrangements that had predetermined amounts to care for their patients, …were actually faring much (better) during the public health emergency. (They) were financially better equipped to provide care for their patients and implement telehealth and weren’t forced to furlough their staff like many providers who were reliant on fee-for-service revenue,” Macmillan said in an interview.She noted that CMS has launched several alternative payment models recently (models that include some degree of capitation). “COVID-19, in many ways, makes some of these alternative payment models more attractive.”
Aine Cryts is a healthcare writer based in the Boston area. Peter Wehrwein is senior editor of Managed Healthcare Executive®.