Congressional leaders have reached an agreement on a $900 billion COVID-19 relief package and $1.4 trillion government funding deal with several healthcare provisions, according to Senate Majority Leader Mitch McConnell, R-Ky., and Minority Leader Chuck Schumer, D-N.Y.
Here are seven things to know about the relief aid and funding deal:
1. Congressional leaders have yet to release text of the COVID-19 legislation, but have shared a few key details on the measure, according to CNBC.Becker’s breaks down the information that has been released thus far.
2. The COVID-19 package includes $20 billion for the purchase of vaccines, about $9 billion for vaccine distribution and about $22 billion to help states with testing, tracing and other COVID-19 mitigation programs, according to Politico.
3. Lawmakers are also expected to include a provision changing how providers can use their relief grants. In particular, the bill is expected to allow hospitals to calculate lost revenue by comparing budgeted revenue for 2020. Hospitals have said this tweak will allow them to keep more funding.
4. The agreement also allocates $284 billion for a new round of Paycheck Protection Program loans.
5. The COVID-19 relief bill also provides$600 stimulus checks to Americans earning up to $75,000 per year and $600 for their children, according to NBC. It also provides a supplemental $300 per week in unemployment benefits.
6. The year-end spending bill includes a measure to ban surprise billing. Under the measure, hospitals and physicians would be banned from charging patients out-of-network costs their insurers would not cover. Instead, patients would only be required to pay their in-network cost-sharing amount when they see an out-of-network provider, according to The Hill.The agreement gives insurers 30 days to negotiate a payment on the outstanding bill. After that period, they can enter into arbitration to gain higher reimbursement.
7. Lawmakers plan to pass the relief bill and federal spending bill Dec. 21.
The U.S. Department of Labor (DOL) released its weekly jobless claims report at 8:30 a.m. ET Thursday. Here were the main metrics from the report, compared to Bloomberg estimates:
Initial jobless claims, week ended Sept. 19: 870,000 vs. 840,000 expected, and 866,000 during the prior week
Continuing claims, week ended Sept. 12: 12.580 million vs. 12.275 million expected, and 12.747 million during the prior week
At 870,000, Thursday’s figure represented the fourth consecutive week that new jobless claims came in below the psychologically important 1 million level, but was still high on a historical basis. Nevertheless, the labor market has made strides in recovering from the pandemic-era spike high of nearly 7 million weekly new claims seen in late March.
“While jobless claims under a million for four straight weeks could be considered a positive, we’re staring down a pretty stagnant labor market,” Mike Loewengart, managing director of investment strategy for E-Trade Financial Corporation, said in an email Thursday. “This has been a slow roll to recovery and with no signs of additional stimulus from Washington, jobless Americans will likely continue to exist in limbo. Further, a shaky labor market translates into a skittish consumer, and in the face of a pandemic that seemingly won’t go away without a vaccine, the outlook for the economy certainly comes into question.”
On an unadjusted basis, initial jobless claims rose by a greater margin, or about 28,500, from the previous week to about 824,500. The seasonally adjusted level of new claims rose by 4,000 week on week.
By state, unadjusted claims in California – where joblessness due to the pandemic has compounded with labor market stress due to wildfires – were again the highest in the country at more than 230,000, for an increase of about 4,400 week-over-week. Georgia, New York, New Jersey and Massachusetts also reported significant increases in new claims relative to the rest of the country. Most states reported at least increases in new claims last week.
Continuing claims have also trended lower after a peak of nearly 25 million in May, and fell for a second straight week in this week’s report. But these claims, which capture the total number of individuals still receiving unemployment insurance, have not broken below the 12 million mark since before the pandemic took hold of the labor market in mid-March.
Consistently high numbers of individuals have been filing for, and receiving, jobless benefits from regular state programs, and those newly created during the pandemic. The number of individuals claiming benefits in all programs for the week ended September 5 – the latest reported week – fell for the first time following three straight weeks of increases to 26.04 million, from the nearly 29.8 million reported during the prior week.
Of that total, more than 11.5 million comprised individuals receiving Pandemic Unemployment Assistance, which is aimed at self-employed and gig workers who don’t qualify for regular unemployment compensation but have still been impacted by the pandemic.
One of the major downside risks to further improvement in the labor market has been concern that Congress may not soon pass another round of fiscal stimulus aimed at keeping individuals on payrolls during the pandemic. Economists have already said that the end of the last round of augmented federal unemployment benefits in late July has weighed on improvements in joblessness.
“The current picture suggests that growth has slowed sharply in the past three months, and that the labor market is stalling again in the face of rising infections and the sudden ending of federal government support to unemployed people,” Ian Shepherdson, chief economist for Pantheon Macroeconomics, said in a note Wednesday.
The need for more fiscal stimulus to encourage the economy’s ongoing recovery has become a key talking point of policymakers including Federal Reserve Chair Jerome Powell and his colleagues at the central bank. In congressional testimony Tuesday and Wednesday, the Fed leader said further fiscal stimulus is “unequaled” by any other form of support that could be unleashed, with the central bank’s lending facilities having gone largely untouched by Main Street.
“The concept of the [congressionally authorized] Paycheck Protection Program was helpful because for many of those kinds of businesses – those businesses that don’t have cash reserves – the ability to get a forgivable loan if they stay open, if they keep people employed, was sound, and did give them the prospect of staying in business,” Joseph Minarik, The Conference Board chief policy economist and former Office of Management and Budget chief economist, told Yahoo Finance. “The notion that you have businesses that have been weak over the last few months and now have simply had to shut their doors, that’s a real problem, and it is not necessity going to be solved with a loan.”
For-profit health systems have been better able to weather a financial crisis caused by COVID-19 than their nonprofit counterparts because they could reduce more expenses, a new analysis from the Medicare Payment Advisory Commission finds.
The analysis released Thursday during MedPAC’s monthly meeting comes as providers struggle to recover from low patient volumes stemming from the COVID-19 pandemic. The report also explored how physician offices have fared.
Hospitals faced a massive dip in patient volume in March and April at the onset of the pandemic, which forced facilities to cancel or delay elective procedures. Patient volumes have since recovered to near pre-pandemic levels, MedPAC found.
But the recovery has been mixed depending on the hospital system.
MedPAC looked at earnings for three large nonprofit systems in the U.S. and four large for-profit systems in the second quarter and found a variation in how they handled the decline in revenue.
Aggregate patient revenue for the nonprofit systems declined by $1.5 billion and this led to a $621 million loss for the systems in the second quarter compared to the same period in 2019. Overall the systems had operating profit margins ranging from negative 13% to positive 5%.
The four for-profit systems saw a $3.5 billion decline in patient revenue. However, the systems posted an increase of $634 million in operating income.
This led to a range of operating margin increases of 1 to 14% in the second quarter compared to 2019.
The for-profit systems got more relief funding ($1.9 billion compared with $782 million) from a $175 billion federal provider relief fund created by the CARES Act.
But the biggest difference between for-profit and nonprofit systems was how they handled expenses.
“For-profit systems substantially reduced expenses in the second quarter, in aggregate reduced by $2.3 billion and that made up for lost revenue,” said Jeff Stensland, a MedPAC staff member, during the meeting.
Nonprofit systems only saw a $13 million decline in expenses.
The analysis comes as some larger for-profit systems like HCA Healthcare generate profits in the second quarter, while nonprofit systems such as Providence posted losses.
MedPAC did not name the systems that it analyzed nor did it delve into what expenses were reduced and how.
Some systems have taken to furloughing employees but all systems have faced increased expenses for personal protective equipment and some staff.
The analysis also looked at the financial impact of the pandemic on physician offices. MedPAC found that federal grants, loans and payment increases offset a majority of the revenue lost in March and May due to patient volume declines.
MedPAC estimated physician offices lost between $45 to $55 billion. However, offices got $26 billion in loans from the Paycheck Protection Program, which don’t have to be repaid if the majority of the funds go to payroll.
Physician offices also received $5 billion out of the $175 billion provider relief fund passed as part of the CARES Act.
Physicians also got $1 billion in savings from the temporary suspension of a 2% decline in Medicare payments created under sequestration.
Businesses that received Paycheck Protection Program (PPP) loans are anxiously eyeing an IRS ruling that could affect whether they apply for loan forgiveness. In a notice this spring, the IRS said it had ruled out tax deductions for wages and rent paid with forgivable PPP loans in order to prevent a “double tax benefit.”
The ruling means contractors cannot write off these types of expenses if they were paid for with PPP loan funds, leaving many wondering whether it will cost more in taxes than to pay the loan back.
According to the U.S. Chamber of Commerce, a forgiven PPP loan is tax-exempt but using the loan can also reduce how much a construction firm can write off on its business taxes. Usually, expenses like payroll, rent and utilities are deductible from normal taxable income, but without the deduction, a business may owe more taxes than it normally pays, the Chamber said.
“Earlier this summer, the bill seemed likely to pass, but that is hardly certain now,” Forbes contributor and tax expert Robert W. Wood wrote.
Joseph Natarelli, leader of the national Construction Industry Practice group at accounting firm Marcum LLP, said some contractors are unaware of the tax implications of PPP forgiveness on their businesses if the ruling is not reversed.
“Using simple numbers, the contractor who decided to borrow $9 million to keep their people employed is now going to owe,” he said. “If you’re in a 50% tax bracket, that’s $4.5 million dollars, so where are you going to get that money from?”
Many of Natarelli’s clients are considering not applying for PPP forgiveness in order to avoid a hefty tax bill, he said.
“They’re saying, ‘If I knew then what I know now, then I wouldn’t have taken the loan and I would have had to lay people off,'” he said.
The bottom line for contractors, Natarelli said, is to check with their accountants about tax implications before applying for loan forgiveness.
“It’s an issue that contractors need to be aware of and I think people took PPP loans that don’t even know it’s taxable now, which is scary,” he said.
The partnership will give Geisinger’s 1.5 million customers and 13 hospitals a consolidated and personalized healthcare billing experience.
Geisinger, a health system serving Pennsylvania and New Jersey, announced this week a new partnership with the digital financial service platform VisitPay.
The partnership will give Geisinger’s 1.5 million customers and 13 hospitals a consolidated and personalized healthcare billing experience through VisitPay.
Its financial services integrate within existing electronic medical record systems and can equip internal revenue cycle teams with a customer service portal for employees to manage patient obligations, customer requests and internal workflow.
Additionally, VisitPay’s system uses artificial intelligence and machine learning to give patient payment recommendations. It also offers point-of-service devices to collect payments and co-pays up front.
For patients who are offline, the platform provides the option to choose between electronic or paper billing statements.
WHY THIS MATTERS
The COVID-19 pandemic has created “historic financial pressures for America’s hospitals and health systems,” according to the American Hospital Association.
The AHA estimated a financial impact of $202.6 billion in losses for hospitals and health systems between March and June as a result of COVID-19.
As a result, many hospitals and health systems are looking for ways to turn around their finances.
VisitPay has found that using greater price transparency and more personalized and convenient payment options may be the way to do so. The company conducted research showing that while healthcare providers experienced a 47% decline and daily total patient payments between March and May, those who used VisitPay’s platform saw a 10% increase in patient payments.
The platform uses a five-point plan designed to give patients the flexibility they need while keeping them engaged in the financial cycle, ensuring providers sustain revenue.
The plan’s points are to maximize self-service, communicate purposefully, make precise offers, target relief appropriately, and balance patient satisfaction and payment rate.
THE LARGER TREND
To help health systems recover financially from the pandemic, Congress allocated $175 million in the Provider Relief Fund of the Coronavirus Aid, Relief, and Economic Security Act and in the Paycheck Protection Program and Healthcare Enhancement Act.
However, many hospitals are still feeling financial burdens and have asked for more assistance.
As they wait for aid, many hospitals have needed to reduce expenses through layoffs and furloughs. Others have created new strategies to recoup lost revenue, some of which include relying on telehealth to continue seeing patients, creating flexible workflows and ensuring positive patient engagements.
ON THE RECORD
“At Geisinger our sole focus is to make health easier for the communities we serve — it is our North Star and guides all of our strategic decisions,” said Kevin Roberts, the executive vice president and CFO at Geisinger. “Partnering with VisitPay is the latest step in that direction and highlights our mission to make healthcare more accessible for our patients, especially given the financial challenges caused by COVID-19. We are thrilled to roll out VisitPay’s solutions as we feel they will be extremely beneficial to our communities.”
The Friday release of the July jobs report gave a clearer view into a labor market clouded by mixed signals from real-time data and concerns about rising coronavirus cases across the country. The U.S. recovered another 1.8 million jobs last month—a bit above economists’ expectations, but well below the gains of May and June — and pushed the unemployment rate down to 10.2 percent.
While the U.S. economy is continuing to recover from the shock of pandemic, the report is a bit more complicated than the headline numbers indicate. Here are five key points to make sense of the July jobs report.
The recovery is still going, but slowing: The story of the coronavirus recession is a story of declines of record-breaking size and speed. Between March and April, the U.S. lost roughly 10 years of job gains and followed it up with a 32-percent annualized decline in economic growth in the second quarter.
The U.S. made solid progress recovering part of the more than 20 million jobs lost to the pandemic with gains of 2.7 million in May and 4.8 million in June. But the 1.8 million jobs gained in July marks a notable slowdown in the pace of recovery.
Economists have warned since coronavirus cases began spiking in mid-June that the resurgence would hinder the pace of growth, even if states don’t reimpose business closures. Those warnings bore out in the July jobs report, reinforcing the need to control the virus before the economy can fully recover.
The report gives both sides ammo in stimulus talks: The state of the economy rarely fits into a neat political narrative and the July jobs report is no exception.
Democrats can point to the slowing pace of job growth and the long road to recovery to support their calls for another $3 trillion in stimulus.
“The latest jobs report shows that the economic recovery spurred by the investments Congress has passed is losing steam and more investments are still urgently needed to protect the lives and livelihoods of the American people,” said House Speaker Nancy Pelosi (D-Calif.) and Senate Minority Leader Charles Schumer (D-N.Y.) in a Friday statement.
But the White House and Republican lawmakers are seizing on the expectations-beating job gain and lack of increase in permanent layoffs to make the case behind a pared down bill focused on reopening the economy.
“The most responsible thing we can do is to take proactive measures to allow people to return to work safely, instead of continuing to lock down the economy,” said Rep. Kevin Brady (R-Texas), ranking member of the House Ways and Means Committee.
The job market is still a long way from recovery: Despite three months of seven-figure job gains, the U.S. economy is still in a deeply damaged state. The July unemployment rate of 10.2 percent is roughly even with the peak of joblessness during the Great Recession of 10 percent in October 2009. And the true level of U.S. unemployment may be higher given how the pandemic has made it harder to define and track who is truly in the labor force.
It took a decade of steady economic recovery— the longest in modern U.S. history — for unemployment to drop to a 50-year low of 3.5 percent in February, so the nation remains a long way from where it was before the pandemic.
“At the current pace, it would take well into 2021 to recoup the 12.9 million jobs lost since February,” wrote Diane Swonk, chief economist at Grant Thornton, in a Friday analysis of the jobs report.
The increase in government jobs is likely misleading: Employment in government — which includes public schools — rose by 301,000 in July.
At first glance, that’s a welcome sign of resilience as state and local governments face severe budget crunches driven by falling tax revenues and staggering unemployment claims. But economists warn that the rise is likely the result of a seasonal adjustment designed to account for the large numbers of teachers and school employees that roll off of payrolls during the summer before coming back to work in the fall.
Elise Gould, senior economist at the left-leaning Economic Policy Institute, noted that public sector employment is still 1 million jobs below its February level after loads of layoffs during the beginning of the pandemic.
“We’ve seen large reductions in state and local public sector employment — a sector which disproportionately employs women and Black workers — over the last few months,” Gould wrote.
“I’d warn data watchers to consider those gains with a grain of salt, and to look at the overall changes from February (pre-COVID-19) to July.”
Aid to state and local governments is one of the biggest obstacles to gathering GOP support behind another stimulus bill, so this rise could factor into the rhetoric around the negotiations.
The report poses hard questions for negotiators: Every monthly jobs report has about two weeks of lag between the time the data was compiled — around the 12th of that month — and the report’s release.
While economic conditions don’t typically change drastically in that time, July was an exception. The $600 weekly boost to jobless benefits and the federal eviction and foreclosure ban enacted in March both lapsed in between the jobs report survey period and release, and much of the money lent through the Paycheck Protection Program had been spent by the end of the month. That means lawmakers are looking at a glimpse of the economy with much more fiscal support than it currently has, posing tough choices about how much more is needed to keep the economy afloat.
Even so, economists are urging lawmakers not to rest on their laurels as the U.S. faces a difficult road ahead.
“Any notion that the improvement in the top line provides a convenient excuse for policymakers to avoid hard decisions around a fifth round of fiscal aid aimed at the unemployed should be summarily dismissed,” wrote Joe Brusuelas, chief economist at tax and audit firm RSM, in a Friday analysis.
Talks on a new coronavirus relief package were going poorly before the report and collapsed hours after it was released.
LEADING THE DAY
Trump embraces jobs report signaling slowdown: The White House is trying to capitalize on the latest jobs numbers, arguing they point to a strong economic recovery under President Trump even as millions remain out of work and states grapple with increases in coronavirus infections.
But the data nevertheless point to an economic slowdown, challenging the White House’s bullish predictions for a speedy V-shaped recovery. The figures also come amid collapsed talks between the Trump administration and Democratic leaders on a coronavirus relief package, which economists say is desperately needed to prevent a deeper recession.
“This is not a rocket ship,” said Martha Gimbel, senior manager of economic research at Schmidt Futures. “It’s really unclear if the economy is going to achieve escape velocity before the lack of government spending crashes down or before … we have to shut down again, which is a total possibility.”
The White House view: White House economic adviser Larry Kudlow, who did the rounds on cable news Friday morning, declared that the numbers evidenced a “self-sustaining recovery” and predicted that the United States would see unemployment head into the single digits in the fall months.
“The worries that some partial shutdowns or some pausing shutdowns would wreck the jobs numbers did not pan out. I think that shows signs of strength,” Kudlow said on Fox Business.
The economists’ take: Economic analysts say that despite the jobs report, there remains a need for additional fiscal stimulus. Many point to an extension of the expanded unemployment benefits and additional aid to states as necessary steps to shepherd the economy through recovery until there is a vaccine for the coronavirus.
“This jobs number doesn’t change the undeniable need for additional federal support,” said Isaac Boltansky, director of policy research at investment bank Compass Point Research & Trading.
1.2 million Americans sought the benefits last week, down slightly from the week before.
The number of newly filed unemployed insurance claims dropped last week after two straight weeks of rising, but it remains well above historic pre-pandemic levels, according to Labor Department data.
It marked the 20th straight week that more than 1 million Americans filed jobless claims.
A total of 1.19 million people filed new claims last week, down from 1.43 million the week previously. The numbers of new claimants have come down from their peak in March of more than six million, but they are still well above the pre-pandemic record of 695,000 from 1982.
Another 656,000 new claims were filed for Pandemic Unemployment Assistance, the benefits offered to gig and self-employed workers.
The number of people continuing traditional unemployment claims, from the week ending July 25, was 16.1 million, down about 844,000 from the week prior. (The statistic lags by a week.) When including the PUA, more than 32.1 million Americans are currently receiving some form of unemployment benefits.
“It is promising that the initial unemployment numbers have ticked down,” said AnnElizabeth Konkel, an economist at Indeed Hiring Lab. “But we aren’t out of the woods yet. The claims are still much higher than the pre-covid era, so it’s still pointing to a lot of economic pain.”
The numbers come during what many economists say is an inflection point for the country’s economy.
Funds from the Paycheck Protection Program, the $660 billion federal aid program that was meant to help small businesses keep workers on the payroll, are in the process of running out, as well. And the coronavirus’ frightening march since mid-June has added to uncertainty about when — or even if — the country can expect a return in the near future to what was considered a normal way of life and doing business not that long ago.
There are many indications that workers are getting laid off for a second time in just a few short months. In California, for example, which has one of the highest rates of workers on unemployment insurance, an analysis by the University of California, Los Angeles, and the California Employment Development Department found that more than half — 57 percent — of initial unemployment claims filed during the week ending July 25th were from workers re-opening older claims, a large majority of which had been filed early in the crisis.
The unemployment rate for July, as well as the number of jobs added or lost, will be released Friday by the Bureau of Labor Statistics, from a survey taken early in the month. Many economists expect the country’s unemployment rate to drop from the 11.1 percent it was at in June; but due to the survey’s lag, many caution that the release will not register more recent economic developments that have emerged in recent weeks as the the pandemic has caught up with the country’s economic rebound.
[Readers’ Note: This is the first of two articles on the Future of Hospitals in Post-COVID America. This article
examines how market forces are consolidating, rationalizing and redistributing acute care assets within the
broader industry movement to value-based care delivery. The second article, which will publish next month,
examines gaps in care delivery and the related public policy challenges of providing appropriate, accessible
and affordable healthcare services in medically-underserved communities.]
In her insightful 2016 book, The Gray Rhino: How to Recognize and Act on the Obvious Dangers We Ignore,
Michelle Wucker coins the term “Gray Rhinos” and contrasts them with “Black Swans.” That distinction is
highly relevant to the future of American hospitals.
Black Swans are high impact events that are highly improbable and difficult to predict. By contrast, Gray Rhinos are foreseeable, high-impact events that we choose to ignore because they’re complex, inconvenient and/or fortified by perverse incentives that encourage the status quo. Climate change is a powerful example
of a charging Gray Rhino.
In U.S. healthcare, we are now seeing what happens when a Gray Rhino and a Black Swan collide.
Arguably, the nation’s public health defenses should anticipate global pandemics and apply resources
systematically to limit disease spread. This did not happen with the coronavirus pandemic.
Instead, COVID-19 hit the public healthcare infrastructure suddenly and hard. This forced hospitals and health systems to dramatically reduce elective surgeries, lay off thousands and significantly change care delivery with the adoption of new practices and services like telemedicine.
In comparison, many see the current American hospital business model as a Gray Rhino that has been charging toward unsustainability for years with ever-building momentum.
Even with massive and increasing revenue flows, hospitals have long struggled with razor-thin margins, stagnant payment rates and costly technology adoptions. Changing utilization patterns, new and disruptive competitors, pro-market regulatory rules and consumerism make their traditional business models increasingly vulnerable and, perhaps, unsustainable.
Despite this intensifying pressure, many hospitals and health systems maintain business-as-usual practices because transformation is so difficult and costly. COVID-19 has made the imperative of change harder to ignore or delay addressing.
For a decade, the transition to value-based care has dominated debate within U.S. healthcare and absorbed massive strategic, operational and financial resources with little progress toward improved care outcomes, lower costs and better customer service. The hospital-based delivery system remains largely oriented around Fee-for-Service reimbursement.
Hospitals’ collective response to COVID-19, driven by practical necessity and financial survival, may accelerate the shift to value-based care delivery. Time will tell.
This series explores the repositioning of hospitals during the next five years as the industry rationalizes an excess supply of acute care capacity and adapts to greater societal demands for more appropriate, accessible and affordable healthcare services.
It starts by exploring the role of the marketplace in driving hospital consolidation and the compelling need to transition to value-based care delivery and payment models.
COVID’s DUAL SHOCKS TO PATIENT VOLUME
Many American hospitals faced severe financial and operational challenges before COVID-19. The sector has struggled to manage ballooning costs, declining margins and waves of policy changes. A record 18 rural hospitals closed in 2019. Overall, hospitals saw a 21% decline in operating margins in 2018-2019.
COVID intensified those challenges by administering two shocks to the system that decreased the volume of hospital-based activities and decimated operating margins.
The first shock was immediate. To prepare for potential surges in COVID care, hospitals emptied beds and cancelled most clinic visits, outpatient treatments and elective surgeries. Simultaneously, they incurred heavy costs for COVID-related equipment (e.g. ventilators,PPE) and staffing. Overall, the sector experienced over $200 billion in financial losses between March and June 20204.
The second, extended shock has been a decrease in needed but not necessary care. Initially, many patients delayed seeking necessary care because of perceived infection risk. For example, Emergency Department visits declined 42% during the early phase of the pandemic.
Increasingly, patients are also delaying care because of affordability concerns and/or the loss of health insurance. Already, 5.4 million people have lost their employer-sponsored health insurance. This will reduce incremental revenues associated with higher-paying commercial insurance claims across the industry. Additionally, avoided care reduces patient volumes and hospital revenues today even as it increases the risk and cost of future acute illness.
The infusion of emergency funding through the CARES Act helped offset some operating losses but it’s unclear when and even whether utilization patterns and revenues will return to normal pre-COVID levels. Shifts in consumer behavior, reductions in insurance coverage, and the emergence of new competitors ranging from Walmart to enhanced primary care providers will likely challenge the sector for years to come.
The disruption of COVID-19 will serve as a forcing function, driving meaningful changes to traditional hospital business models and the competitive landscape. Frankly, this is long past due. Since 1965, Fee-for-Service (FFS) payment has dominated U.S. healthcare and created pervasive economic incentives that can serve to discourage provider responsiveness in transitioning to value-based care delivery, even when aligned to market demand.
Telemedicine typifies this phenomenon. Before COVID, CMS and most health insurers paid very low rates for virtual care visits or did not cover them at all. This discouraged adoption of an efficient, high-value care modality until COVID.
Unable to conduct in-person clinical visits, providers embraced virtual care visits and accelerated its mass adoption. CMS and
commercial health insurers did their part by paying for virtual care visits at rates equivalent to in-person clinic visits. Accelerated innovation in care delivery resulted.
THE COMPLICATED TRANSITION TO VALUE
Broadly speaking, health systems and physician groups that rely almost exclusively on activity-based payment revenues have struggled the most during this pandemic. Vertically integrated providers that offer health insurance and those receiving capitated payments in risk-based contracts have better withstood volume losses.
Modern Healthcare notes that while provider data is not yet available, organizations such as Virginia Care Partners, an integrated network and commercial ACO; Optum Health (with two-thirds of its revenue risk-based); and MediSys Health Network, a New Yorkbased NFP system with 148,000 capitated and 15,000 shared risk patients, are among those navigating the turbulence successfully. As the article observes,
…providers paid for value have had an easier time weathering the storm…. helped by a steady source of
income amid the chaos. Investments they made previously in care management, technology and social
determinants programs equipped them to pivot to new ways of providing care.
They were able to flip the switch on telehealth, use data and analytics to pinpoint patients at risk for
COVID-19 infection, and deploy care managers to meet the medical and nonclinical needs of patients even
when access to an office visit was limited.
Supporting this post-COVID push for value-based care delivery, six former leaders from CMS wrote to Congress in
June 2020 calling for providers, commercial insurers and states to expand their use of value-based payment models to
encourage stability and flexibility in care delivery.
If value-based payment models are the answer, however, adoption to date has been slow, limited and difficult. Ten
years after the Affordable Care Act, Fee-for-Service payment still dominates the payer landscape. The percentage of overall provider revenue in risk-based capitated contracts has not exceeded 20%
Despite improvements in care quality and reductions in utilization rates, cost savings have been modest or negligible. Accountable Care Organizations have only managed at best to save a “few percent of Medicare spending, [but] the
amount varies by program design.”
While most health systems accept some forms of risk-based payments, only 5% of providers expect to have a majority (over 80%) of their patients in risk-based arrangements within 5 years.
The shift to value is challenging for numerous reasons. Commercial payers often have limited appetite or capacity for
risk-based contracting with providers. Concurrently, providers often have difficulty accessing the claims data they need
from payers to manage the care for targeted populations.
The current allocation of cost-savings between buyers (including government, employers and consumers), payers
(health insurance companies) and providers discourages the shift to value-based care delivery. Providers would
advance value-based models if they could capture a larger percentage of the savings generated from more effective
care management and delivery. Those financial benefits today flow disproportionately to buyers and payers.
This disconnection of payment from value creation slows industry transformation. Ultimately, U.S. healthcare will not
change the way it delivers care until it changes the way it pays for care. Fortunately, payment models are evolving to
incentivize value-based care delivery.
As payment reform unfolds, however, operational challenges pose significant challenges to hospitals and health
systems. They must adopt value-oriented new business models even as they continue to receive FFS payments. New
and old models of care delivery clash.
COVID makes this transition even more formidable as many health systems now lack the operating stamina and balance sheet strength to make the financial, operational and cultural investments necessary to deliver better outcomes, lower costs and enhanced customer service.
MARKET-DRIVEN CONSOLIDATION AND TRANSFORMATION
Full-risk payment models, such as bundled payments for episodic care and capitation for population health, are the
catalyst to value-based care delivery. Transition to value-based care occurs more easily in competitive markets with many attributable lives, numerous provider options and the right mix of willing payers.
As increasing numbers of hospitals struggle financially, the larger and more profitable health systems are expanding their networks, capabilities and service lines through acquisitions. This will increase their leverage with commercial payers and give them more time to adapt to risk-based contracting and value-based care delivery.
COVID also will accelerate acquisition of physician practices. According to an April 2020 MGMA report, 97% of
physician practices have experienced a 55% decrease in revenue, forcing furloughs and layoffs15. It’s estimated the
sector could collectively lose as much as $15.1 billion in income by the end of September 2020.
Struggling health systems and physician groups that read the writing on the wall will pro-actively seek capital or strategic partners that offer greater scale and operating stability. Aggregators can be selective in their acquisitions,
seeking providers that fuel growth, expand contiguous market positions and don’t dilute balance sheets.
Adding to the sector’s operating pressure, private equity, venture investors and payers are pouring record levels of
funding into asset-light and virtual delivery companies that are eager to take on risk, lower prices by routing procedures
and capture volume from traditional providers. With the right incentives, market-driven reforms will reallocate resources to efficient companies that generate compelling value.
As this disruption continues to unfold, rural and marginal urban communities that lack robust market forces will experience more facility and practice closures. Without government support to mitigate this trend, access and care gaps that already riddle American healthcare will unfortunately increase.
WINNING AT VALUE
The average hospital generates around $11,000 per patient discharge. With ancillary services that can often add up to
more than $15,000 per average discharge. Success in a value-based system is predicated on reducing those discharges and associated costs by managing acute care utilization more effectively for distinct populations (i.e. attributed lives).
This changes the orientation of healthcare delivery toward appropriate and lower cost settings. It also places greater
emphasis on preventive, chronic and outpatient care as well as better patient engagement and care coordination.
Such a realignment of care delivery requires the following:
A tight primary care network (either owned or affiliated) to feed referrals and reduce overall costs through
better preventive care.
A gatekeeper or navigator function (increasingly technology-based) to manage / direct patients to the most
appropriate care settings and improve coordination, adherence and engagement.
A carefully designed post-acute care network (including nursing homes, rehab centers, home care
services and behavioral health services, either owned or sufficiently controlled) to manage the 70% of
total episode-of-care costs that can occur outside the hospital setting.
An IT infrastructure that can facilitate care coordination across all providers and settings.
Quality data and digital tools that enhance care, performance, payment and engagement.
Experience with managing risk-based contracts.
A flexible approach to care delivery that includes digital and telemedicine platforms as well as nontraditional sites of care.
Aligned or incentivized physicians.
Payer partners willing to share data and offload risk through upside and downside risk contracts.
Engaged consumers who act on their preferences and best interests.
While none of these strategies is new or controversial, assembling them into cohesive and scalable business models is something few health systems have accomplished. It requires appropriate market conditions, deep financial resources,
sophisticated business acumen, operational agility, broad stakeholder alignment, compelling vision, and robust
Providers that fail to embrace value-based care for their “attributed lives” risk losing market relevance. In their relentless pursuit of increasing treatment volumes and associated revenues, they will lose market share to organizations that
deliver consistent and high-value care outcomes.
CONCLUSION: THE CHARGING GRAY RHINO
America needs its hospitals to operate optimally in normal times, flex to manage surge capacity, sustain themselves
when demand falls, create adequate access and enhance overall quality while lowering total costs. That is a tall order requiring realignment, evolution, and a balance between market and policy reform measures.
The status quo likely wasn’t sustainable before COVID. The nation has invested heavily for many decades in acute and
specialty care services while underinvesting, on a relative basis, in primary and chronic care services. It has excess
capacity in some markets, and insufficient access in others.
COVID has exposed deep flaws in the activity-based payment as well as the nation’s underinvestment in public health.
Disadvantaged communities have suffered disproportionately. Meanwhile, the costs for delivering healthcare services
consume an ever-larger share of national GDP.
Transformational change is hard for incumbent organizations. Every industry, from computer and auto manufacturing to
retailing and airline transportation, confronts gray rhino challenges. Many companies fail to adapt despite clear signals
that long-term viability is under threat. Often, new, nimble competitors emerge and thrive because they avoid the inherent contradictions and service gaps embedded within legacy business models.
The healthcare industry has been actively engaged in value-driven care transformation for over ten years with little to
show for the reform effort. It is becoming clear that many hospitals and health systems lack the capacity to operate profitably in competitive, risk-based market environments.
This dismal reality is driving hospital market valuations and closures. In contrast, customers and capital are flowing to
new, alternative care providers, such as OneMedical, Oak Street Health and Village MD. Each of these upstart
companies now have valuations in the $ billions. The market rewards innovation that delivers value.
Unfortunately, pure market-driven reforms often neglect a significant and growing portion of America’s people. This gap has been more apparent as COVID exacts a disproportionate toll on communities challenged by higher population
density, higher unemployment, and fewer medical care options (including inferior primary and preventive care infrastructure).
Absent fundamental change in our hospitals and health systems, and investment in more efficient care delivery and
payment models, the nation’s post-COVID healthcare infrastructure is likely to deteriorate in many American communities, making them more vulnerable to chronic disease, pandemics and the vicissitudes of life.
Article 2 in our “Future of Hospitals” series will explore the public policy challenges of providing appropriate, affordable and accessible healthcare to all American communities.
For months now, American workers, families and small businesses have been saying they can’t keep up their socially distanced lives for much longer. We’ve now arrived at “much longer” — and the pandemic isn’t going away anytime soon.
The big picture: The relief policies and stopgap measures that we cobbled together to get us through the toughest weeks worked for a while, but they’re starting to crumble just as cases are spiking in the majority of states.
Next week, the extra $600 per week in expanded unemployment benefits will expire. And there’s no indication that Congress has reached a consensus on extending this assistance or providing anything in its place.
But nearly half of the U.S. population is still jobless, and millions will remain jobless for the foreseeable future. There are 14 million more unemployed people than there are jobs, per the Economic Policy Institute.
Nearly a third of Americans missed a housing payment in July — and that was with the additional $600. Plus, most Americans have already spent the stimulus checks they received at the beginning of the pandemic.
“We should be very concerned about what’s going to happen in August and beyond” — starting with a spike in evictions, Mathieu Despard, who leads the Social Policy Institute at the Washington University in St. Louis, tells Axios.
Expect more furloughs and layoffs as more small businesses are pushed off the pandemic cliff.
By economists’ estimates, more than 100,000 small businesses have permanently closed since the pandemic began.
For those that are hanging on, loans from the Paycheck Protection Program (PPP) have not been enough, and the back and forth between re-opening and then closing again as states deal with new case waves has been devastating. In fact, rates of closure have started increasing, the New York Times reports, citing Yelp data.
The big firms aren’t immune either. Just last week, behemoths like United Airlines, Wells Fargo, Walgreens and Levi’s either cut jobs or told workers their jobs were at risk,Axios’ Dion Rabouin writes.
And the question of whether schools will reopen looms.
Since schools sent kids home in March, and most summer camps didn’t open their doors for the summer, working parents have been dealing with a child care crisis — attempting to do their jobs, care for their kids and homeschool all at once — and hoping that the stress will be temporary.
The situation is more dire for low-income families with kids who rely on school lunches or for single parents who are juggling work and parenting without any help.
Now the public heath crisis hasn’t abated, and school districts are running out of time to figure out what the fall will look like. Some, starting with Los Angeles, have already decided to go online.
The bottom line: “It’s the uncertainty that is anxiety-inducing,” says Despard. “If you give people a time horizon and say, ‘Look you have to get through these next 8 weeks of extreme shutdown,’ they’ll do it. Now it’s like, ‘How much longer?'”
Another 1.3 million people filed for unemployment for the first time last week, a slight decrease from the week before, as novel coronavirus cases and closures surged around the country, according to data released Thursday by the Department of Labor.
The numbers of new unemployment filings have remained above a million each week since the pandemic began mid-March. That number has averaged about 1.4 million the past four weeks.
In addition, states reported that another 1 million claims were made under the Pandemic Unemployment Assistance program, which grants jobless benefits for gig workers, self-employed workers and contractors, the agency reported.
When combined, the two numbers for initial unemployment claims have ticked up the past three weeks, from 2.24 million in mid-June to 2.44 million last week.
The numbers for the first few days of July come as rising cases of coronavirus infections have hit states and counties nationwide, touching off a new round of closures and restrictions and sending some workers back to the unemployment insurance queue for the second time in just a few short months.
“The bad news is that initial claims are still historically very high and they suggest that damage is continuing to accumulate in the economy,” Adam Ozimek, chief economist at Upwork, said in an interview.
The unemployment rate, which is tabulated separately from the weekly jobless claims, has trended downward the past two months, to 11.1 percent last month, as many laid off or furloughed workers in industries like food service and retail were called back to work. Yet a rising number of workers have reported permanent layoffs.
And the jobless statistics don’t capture the damage from the new round of cases yet.
“All these factors look more like an economy that is riding into a recession than out of one,” Ozimek said. “At this stage in the game, when we’re this far from initial shock, it becomes less likely that new layoffs are the types of jobs that snap back.”
The numbers of people continuously receiving benefits at the end of June has also trended gradually downward. The last week of June saw 18.1 million people on unemployment insurance, down from 19.3 million people the week before that, as re-hirings have slightly outpaced new layoffs week by week.
But as hopes fade for a quick rebound from the pandemic — the United States reported more than 60,000 new cases on Wednesday, a new high — signs of longer term economic damage are emerging.
There are many workers like Samantha Hartman, 29, whose temporary layoff — she was furloughed in March from Rosen Hotels & Resorts, the hospitality company she works for in Orlando — became permanent this week.
Hartman said her supervisor called her this week to tell her that the company had tried to come up with a way to keep employees but found their hands tied with almost no business coming in.
“Everything is up in the air,” Hartman said. “I fully expect not to find another job in this industry.”
Hartman, who has a heart condition, said the company is letting her keep her health care through August. She moved to Orlando two years ago for the job. Now, she says she’ll probably move back with her family in California when her lease is up next year.
She said Florida’s challenges — including large delays in unemployment insurance processing, mishandling of the coronavirus response, a governor she doesn’t trust — make her less likely to stay in Florida. “If I’m going to struggle financially, I’d rather do that back home where I have a support system,” Hartman said.
And there’s a grim waiting game for what are expected to be widespread layoffs in state and municipal governments, as budgets are drastically pared to meet declining tax revenue.
Initial weekly jobless claims remain well above the record before the pandemic, of 695,000 in 1982. They have dropped every week since the peak of 6.9 million, from a week in late March, but have plateaued for more than a month.