Projected Financial Impact of COVID-19 Leaves Healthcare Leaders Searching for Help
There have already been several analyses and projections of the financial ramifications that the ongoing COVID-19 pandemic is estimated to have on the healthcare system. Nearly all of them are unsettling.
For instance, the epidemic could cost Medicare between $38.5 billion and $115.4 billion over the next year, according to a new analysis from the National Association of ACOs (NAACOS). Officials at NAACOS noted that the final number will depend on factors such as severity of disease and hospitalization rates.
The analysis, which they contend is some of the first developed on the issue, shows the pandemic will place a hardship on healthcare organizations that participate in payment models, like ACOs, that hold providers accountable for patients’ healthcare spending. They added that more ACOs today are being held at risk, meaning they face penalties if spending rises above pre-set spending targets. A similar burden will be placed on Medicare Advantage plans.
According to the NAACOS analysis, because approximately 20 percent of all Medicare beneficiaries are assigned to an ACO, potential new COVID-related costs for Medicare ACO beneficiaries could range from $7.7 billion to $23.1 billion. Since total spending for ACO beneficiaries was about $125 billion in 2018, ACOs could see an increase in spending between 6 percent to 18 percent because of COVID-19.
NAACOS and nine other leading healthcare organizations recently asked the Centers for Medicare & Medicaid Services (CMS) for relief so that providers participating in alternative payment models are not inappropriately penalized for the extreme costs of handling the COVID-19 pandemic. Requests included holding clinicians harmless from performance-related penalties for 2020, making appropriate adjustments to spending targets, performance scores, patient attribution and risk adjustment, and providing financial support and reinsurance.
“We are just on the tip the iceberg of a global, public health pandemic that is out of ACOs’ control. We could see generated savings wiped out, massive penalties, and worst of all, ACOs dropping out of the program to avoid losses,” said Clif Gaus, NAACOS president and CEO. “In short, COVID-19 threatens to derail adoption of alternative payment models and the movement to value-based care. We need policymakers to give assurance to ACOs that they’ll take appropriate steps to provide needed protection.”
What impact will the CARES ACT have?
Notably, the $2 trillion federal stimulus bill, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), that was recently signed into law by President Trump, includes $100 billion for hospitals. It also boosts reimbursements by 20 percent for treating Medicare patients with coronavirus. And it eliminates $8 billion in scheduled payment reductions to hospitals caring for large numbers of uninsured and Medicaid patients, as well as temporarily removing a 2 percent cut for treating Medicare patients, which was part of the automatic budget cuts under sequestration.
Even with the 20 percent increase in Medicare reimbursement for COVID-19 cases, however, a recent analysis from Strata Decision Technology found that hospitals, on average, will lose about $1,200 per COVID case and up to $6,000 to $8,000 per case for some hospital systems, depending on their payer mix. “If the projections’ worst-case scenarios pan out, that will cause [problems],” says Chad Mulvany, director of healthcare finance policy, perspectives and analysis, at the Healthcare Financial Management Association (HFMA), a membership organization for healthcare financial management executives.
A big reason for the estimated loss in revenue is due to the margin lost from elective inpatient services deferred as hospitals make room for more COVID-19 patients. Elective cases are the primary source of revenue for many hospitals, allowing them to take a loss on certain other services while remaining profitable. Mulvany says he recently spoke to one CFO at a hospital that recently postponed elective procedures, per the government’s guidance, and in a span of a week this organization went from having a profitable month to putting them in the red.
Mulvany believes the CARES Act funding will help offset these losses somewhat, but while $100 billion sounds like a large amount, by the time hospitals cover the expenses with COVID-19-related surge capacity and the lost revenue for however long elective procedures need to be delayed, “it may not be sufficient.”
He contends that “it will all depend on how long we have to operate in a pandemic situation.” Mulvany also brings up the likely scenario in which organizations will have to hire temporary staff to meet the flood of patients. “You may have to go to an agency and hire labor on a temporary basis, but there’s now a premium associated with that. And N95 masks, prior to this [crisis], cost 30 cents apiece, but are now going for upwards of $5 apiece. The expense implications of this are significant.”
Facility closures appear inevitable
The Strata analysis further concluded that some hospitals will not be able to survive the damage to their cash flow for longer than 60 to 90 days. Even before the pandemic, many rural hospitals were in danger of shutting down; recent research from the Chartis Center for Rural Health found that more than 450 rural hospitals are vulnerable to closure. Mulvany says that COVID-19 “may accelerate what was probably inevitable for those facilities.”
There is also increased awareness now that U.S. hospitals may not have enough beds to respond to a pandemic; state regulators will have to decide if they’re willing to let those beds at rural hospitals close. Mulvany contends that if he were a governor of a state that’s about to lose a rural hospital, he would do everything he could to keep those beds there. “Once you lose [those hospitals], not only do you lose the ability to respond to events like this, but you also lose the economic anchor of a community because businesses won’t locate in that area unless there’s a hospital,” he says.
Some smaller physician practices are also in trouble as many two- or three-person primary care practices have either shut their doors due to COVID-19 or are not seeing their patients in-person, notes Mulvany. And while some of them may have invested in telehealth and are still being able to see patients virtually, those that haven’t do not have revenue coming in, he points out.
Organizations ask for periodic interim payments to providers
Meanwhile, healthcare improvement company Premier last week joined eight other national hospital and physician organizations in urging CMS to immediately begin making periodic interim payments to healthcare providers.
“In anticipation for the coming onslaught of both suspected and diagnosed COVID-19 cases, we’ve heard from some hospitals that they are already experiencing up to a 40 percent decrease in services. We believe these unprecedented times call for unprecedented action by CMS,” the organizations wrote in a letter to CMS and the Department of Health & Human Services (HHS) that was also signed by Aledade, the American Academy of Family Physicians, America’s Essential Hospitals, American Medical Group Association, America’s Physician Groups, Association of American Medical Colleges, Catholic Health Association of the U.S. and National Rural Health Association.
Regarding the federal stimulus bill, the organizations wrote that it “provides additional authority for the Secretary to make such payments to hospitals. However, we believe such payments should be made to all providers.” Indeed, one of the key details of the Act will be how $100 billion dollars will be divvied up, though it appears the priority will go to the areas that have been hit hardest first. “The statute says that applications [to receive the funding] will be on a rolling basis, but to me that implies it’s essentially $100 billion until the money runs out. Basically, it’s first come, first served,” Mulvany says.
The final version of the CARES Act, however, did expand the types of hospitals that could access that funding, and also provided more flexible terms for hospitals. Generally, expedited payments are offered when providers struggle due to emergencies such as natural disasters, but this past weekend, CMS released guidance noting it would be expanding its accelerated and advance payment program for Medicare providers. Mulvany noted the payment terms will depend on who is applying, and that folks should apply through their Medicare administrator contractors.
