Last week, the Congressional Budget Office’ issued its updated outlook for FY 2020 predicting a record deficit of $3.3 trillion this year which includes $2.2 trillion for pandemic relief funding.
It also noted that the Medicare Hospital Insurance Trust Fund will have funds to cover only 95% of its 2024 obligations decreasing to 80% of its obligations in 2030. That’s two years sooner than its pre-pandemic warning.
ISSUE ONE: DEFICITS
The issue is mounting federal debt and what to do about it. It is the result of deficits that have cumulated every year (except 1998-2001) since 1931. Deficit spending in the U.S. economy is a bipartisan habit: the federal government spends more than it takes in and healthcare gets a third of what’s spent. Consider recent administrations:
Trump Deficits: Fiscal Years 2017-2020: Not including the pandemic relief funds ($2 trillion), the Trump administration has added $3.511 trillion to the national debt in its first four years. The administration’s deficits reflect policies focused on de-regulation, private sector economic growth and lower taxes. Key legislation passed by Congress include the Tax Cut and Jobs Act (2017) that cut corporate taxes, the repeal of the Independent Payment Advisory Board (IPAB) as part of the Bipartisan Budget Act of 2018 that eliminated Medicare spending caps, repeal of the ACA’s “Cadillac Tax” on employer health benefits in the Consolidated Appropriations Act of 2020. Then, in February 2020, the pandemic hit prompting passage of four relief packages to keep the economy stay afloat.
Obama Deficits (FY 2009-2012): In the Obama administration’s first four years (FY09-12), deficits totaled $5.084 trillion. They were primarily focused on economic recovery as a result of the 2008 recession that pushed unemployment to 10.5% and the banking market to insolvency. Key spending bills authorized by Congress included the Stimulus Act (ARRA 2009) to create “shovel ready jobs”, the Affordable Care Act (PPACA 2010) that expanded insurance coverage and a $250 billion bailout for banks, among others.
Ironically, both administrations have faced an economic crisis in which the healthcare industry plays a central role:
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In the Trump administration, healthcare has been the spotlight for vaccine development, public health preparedness and nursing home risks. The prominence of the CDC, heroics of frontline caregivers and telehealth have surfaced as key storylines.
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In the Obama administration, healthcare was the key to economic recovery: while the economy lost 8 million jobs, healthcare added 1 million. Those “shovel ready jobs” were caregivers and knowledge workers who set the stage for healthcare’s ascent to 18% of the nation’s GDP.
And in both administrations, healthcare spending averaged 2% above the nation’s GDP. That’s the reason private investors continue to flock to healthcare: when the economy is good, healthcare does better. When the economy is bad, healthcare does well. It’s an industry many believe recession-proof. Coupled with FAAMG (Facebook, Amazon, Apple, Microsoft, Google), Big Tech and healthcare now constitute 43% of the U.S. economy displacing the energy and financial sectors that had dominated for decades. That’s the reason for its prominence and investor exuberance: it’s big, profitable, predictable, and resistant to change.
ISSUE TWO: PUBLIC MOOD
The public’s trust in the health system and its inclination to support changes to its funding is problematic. Polls show the public trusts their physicians and hospitals but thinks the health system is fundamentally flawed, wasteful, and inefficient. Polls show the public thinks the drugs we’re prescribed are safe and effective but the companies that produce them greedy and self-serving. Polls show insurance is viewed as essential to accessing the health system by the majority but the companies that sell the policies are thought complicit in its soaring costs and lack of affordability. Experiences like Jack Sussman’s surprise $10,984 bill for a $175 Covid antibody test for which that the insurer paid 80% resonant with consumers. And reports about soaring earnings and fat paychecks for executives sour the public’s affection for its good intent.
During the pandemic, the heroics of emergency personnel and frontline caregivers garnered good will for the industry among consumers and voters. The Warp Speed race to a vaccine this year has sparked hope for a return to normalcy next year. But news about the profitability of insurers, drug companies, investor-owned health systems and the pay packages their executives enjoy while 40% of households have suffered enormous financial and emotional despair dampens the public’s support for policies that involve additional funding. Many believe the health system is corrupt: most think it serves its own interest rather than theirs.
Because of mounting deficits and the public’s mood, combined with anxiety about the pandemic, healthcare is on the radar as never before. It’s modern and state of the art for the dwindling number those who need specialized care and can afford it, but out of reach for the expanding majority.
Economic recovery will not be overnight. Major changes in how healthcare is funded appear unlikely. And affordability anxiety among consumers is palpable.
Every management team and board in healthcare should develop future-state scenario’s in which assumptions about deficit reduction and public support are considered. The Covid-economy is a one-two punch to healthcare.
Business as usual is not an option, even for the strongest organizations seemingly able to dodge body blows like this.
Stay safe. Stay well.
Paul
RESOURCES
“An Update to the Budget Outlook: 2020-2030” Congressional Budget Office September 2, 2020 https://www.cbo.gov
Rebecca Pifer “CBO finds COVID-19 puts Medicare trust fund insolvency just 4 years away” Healthcare Dive September 4, 2020 https://www.healthcaredive.com/news/cbo-finds-covid-19-puts-medicare-trust-fund-insolvency-just-4-years-away
Marshall Allen “A Doctor Went to His Own Employer for a COVID-19 Antibody Test. It Cost $10,984” ProPublica September 5, 2020 https://www.propublica.org/article/a-doctor-went-to-his-own-employer-for-a-covid-19-antibody-test-it-cost-10-984
“Analysis of CBO’s September 2020 Budget Outlook” Committee for a Responsible Federal Budget September 2, 2020; https://www.crfb.org/papers/analysis-cbos-september-2020-budget-outlook
CORONAVIRUS NEWS
CBO: Medicare Hospital Trust Fund Insolvent in 2024 due to Covid
The CBO released its updated budget outlook last Wednesday. Highlights:
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Medicare expenditures will increase 12% this year to $721 billion increasing from 3.2% of GDP to 4.3% in 2030.
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Medicaid expenditures will increase 14% to $466 billion this year remaining 2% of GDP for the decade.
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The Medicare Hospital Insurance Trust Fund will have funds to cover 95% of 2024 obligations decreasing to 80% of 2030 obligations.
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Medicare spending will have to be cut by 17% — about $1,000 per beneficiary — to keep the program operational.
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The overall budget deficit for FY20 will be $3.3 trillion — 16% of GDP and more than triple the shortfall recorded in 2019 — in the 2020 fiscal year, and total $13 trillion over the next decade.
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All major trust funds for programs like Medicare, Social Security and highway construction will run out of reserves in the next 11 years.
Rebecca Pifer “CBO finds COVID-19 puts Medicare trust fund insolvency just 4 years away” Healthcare Dive September 4, 2020; https://www.healthcaredive.com/news/cbo-finds-covid-19-puts-medicare-trust-fund-insolvency-just-4-years-away
Poll: Americans Hopeful COVID-19 Will be Under Control in Six Months
The 23rd installment of the Axios-Ipsos Coronavirus Index released September 1:
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57% of Americans are very or somewhat hopeful that the U.S. will get the COVID-19 pandemic under control in the next six months. However, Republicans are significantly more optimistic than Democrats – there is a 40% difference between the two – while Independents are more evenly split on being hopeful or not.
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39% believe the federal government is making the country’s recovery from the COVID-19 pandemic better, while 60% say it is making it worse.
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58% of Americans know someone who has tested positive, a new high. 22% know someone who has died. While racial differences in knowing someone, who has tested positive have mostly dissipated, Black (39%) and Hispanic (31%) Americans are more likely than white (18%) Americans to know someone who has died of the disease.
“Most Americans hopeful COVID-19 will be under control in six months, yet see federal government as making things worse” Axios-Ipsos September 1, 2020; https://www.ipsos.com/en-us/news-polls/axios-ipsos-coronavirus-index
Epic Study: Televisits Down Two-Thirds
Telemedicine visits accounted for 21% of total encounters in mid-July, down from 69% at the early peak of the pandemic in April, according to national data from Epic. The declines are not occurring across all specialties. Traditional providers are also continuing to carry out most mental health visits via phone or video, while specialists that tend to require more hands-on care, like orthopedists, are seeing more patients return to their offices.
Casey Ross “Telehealth grew wildly popular amid Covid-19. Now visits are plunging, forcing providers to recalibrate” STAT September 1, 2020; https://www.statnews.com/2020/09/01/telehealth-visits-decline-covid19-hospitals
Study: 41% of Population Experience Mental Health Disorder During Pandemic
To assess mental health, substance use, and suicidal ideation during the pandemic, representative panel surveys were conducted among adults aged ≥18 years across the United States during June 24–30, 2020. Highlights:
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40.9% of respondents reported at least one adverse mental or behavioral health condition, including symptoms of anxiety disorder or depressive disorder (30.9%), symptoms of a trauma- and stressor-related disorder (TSRD) related to the pandemic† (26.3%), and having started or increased substance use to cope with stress or emotions related to COVID-19 (13.3%).
Creisler et al “Mental Health, Substance Use, and Suicidal Ideation During the COVID-19 Pandemic — United States, June 24–30, 2020” Morbidity and Mortality Weekly Report August 14, 2020 / 69(32);1049–1057 https://www.cdc.gov/mmwr/volumes/69/wr/mm6932a1.htm
Study: Depression Widespread, Especially in Lower Income Households
This analysis compared opinions of 1441 respondents during the COVID-19 pandemic to 5065 from before the pandemic: depression symptom prevalence was more than 3-fold higher during the COVID-19 pandemic than before. Lower income, having less than $5000 in savings, and having exposure to more stressors were associated with greater risk of depression symptoms during COVID-19.
Ettman et al “Prevalence of Depression Symptoms in US Adults Before and During the COVID-19 Pandemic” JAMA Netw Open. September 2, 2020;3(9):e2019686; https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2770146
MedPAC: During Covid, For-Profit Hospitals Cut Expenses More Aggressively than Not-For-Profits
A new analysis from MedPAC found for-profit hospital systems posted positive operating margins in the second quarter despite dips in revenue due to COVID-19 attributed to deep cuts in expenses. MedPAC looked at earnings for three large non-profit 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. Highlights:
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Aggregate patient revenue for the non-profit systems declined by $1.5 billion resulting in a $621 million loss for the systems in the second quarter compared to the same period in 2019. Their operating margins ranged from -13% to +5%.
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The four for-profit systems had a $3.5 billion decline in patient revenue and posted an increase of $634 million in operating income.
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Their operating margins ranged from +1% to +14% in the second quarter compared to 2019.
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The for-profit systems got more relief funding ($1.9 billion compared with $782 million) from the $175 billion federal provider relief fund created by the CARES Act.
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For-profit systems substantially reduced expenses in the second quarter by $2.3 billion vs. an aggregate $13 million decline in expenses in the NFP systems.
Robert King “For-profit systems fare better than non-profits in weathering COVID-19 cash crisis, MedPAC says” Fierce Healthcare Sep 3, 2020 https://www.fiercehealthcare.com/hospitals/medpac-for-profit-systems-do-better-job-than-nonprofits-weathering-covid-19-cash-crisis
MedPAC September 3-4 public meeting http://www.medpac.gov/-public-meetings-
JAMA study: 28% of Community Health Center Patients Test Positive for Covid-19
Community health centers (CHCs) serve 30 million people including high proportions of patients susceptible to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) infection and adverse outcomes. The OHSU-led research team analyzed used electronic health record (EHR) data from CHC’s in 21 states. Highlights: among 1,938,736 patients seen at 431 primary care clinics in 132 CHCs, 33,266 patients (1.7%) underwent SARS-CoV-2 testing, of whom 9348 (28% of all tests) had positive results.
Heintzman et al “SARS-CoV-2 Testing and Changes in Primary Care Services in a Multistate Network of Community Health Centers During the COVID-19 Pandemic” JAMA. August 31, 2020; https://jamanetwork.com/journals/jama/article-abstract/2770242
Poll: 4 of 10 Uncertain about Being Vaccinated
In this Agency for Healthcare Research and Quality (AHRQ) funded survey of 1000 U.S. adults in April 2020, 57.6% of participants said they intend to be vaccinated, 31.6% were not sure, and 10.8% did not intend to be vaccinated. “Factors independently associated with vaccine hesitancy (a response of “no” or “not sure”) included younger age, Black race, lower educational attainment, and not having received the influenza vaccine in the prior year. Reasons for vaccine hesitancy included vaccine-specific concerns, a need for more information, antivaccine attitudes or beliefs, and a lack of trust.”
Fisher et al “Attitudes Toward a Potential SARS-CoV-2 Vaccine: A Survey of U.S. Adults” Annals of Internal Medicine September 4, 2020; https://www.acpjournals.org/doi/10.7326/M20-3569
INDUSTRY NEWS
AMGA: Physicians in Group Practice Saw Compensation Increase of 3.79% Last Year
American Medical Group Association’s 33rd annual 2020 Medical Group Compensation and Productivity Survey: The AMGA survey of 317 medical groups representing 127,000 physicians found:
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Overall physician compensation increased by 3.79%, up from the 2.92% increase in 2018.
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Overall production increased by 0.56% in 2019, compared to a 0.29% increase last year.
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Compensation per wRVU ratio increased by 2.14% in 2019, down from the 3.64% in 2018.
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Median compensation for primary care specialties increased by 4.46% in 2019 to $243,000, down from an increase of 4.91% in 2018 while the average annual salary for specialists rose 1.5% to $346,000.
33rd edition, Medical Group Compensation and Productivity Survey American Medical Group Association; https://www.amga.org/performance-improvement/best-practices/benchmarking-surveys/compensation-survey/2020/
August Labor Report: Healthcare Employment up but Post-Acute Sectors Shedding Jobs
The Bureau of Labor Statistics report for August released last week:
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The overall economy added 1.4 million jobs in August, and the unemployment rate fell to 8.4%, from 10.2% in July.
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Healthcare added an estimated 75,300 jobs in August vs. 135,000 added in July: hospitals added 14,000 vs. 27,000 in July; ambulatory sectors added 75,000 vs. 130,000 in July (26,500 in physicians’ offices, 21,600 in dentist offices, 11,600 in home health and 10,600 in other settings), post-acute, nursing homes and residential care facilities lost 13,700 jobs in August (community care facilities lost 7,900 jobs, nursing homes lost 7,700 jobs) and residential mental health facilities added 3,200 jobs.
U.S. Bureau of Labor Statistics August 2020 Jobs Report; https://www.bls.gov/news.release/pdf/empsit.pdf
Hospital 2021 Inpatient Payment Rule
Last Wednesday, CMS issued its final rule for 2021 hospital payments. Highlights:
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Intensity of care adjustment: Hospitals will get a 2.9% pay boost in fiscal year 2021 for inpatient Medicare services amounting to $3.5 billion ($3 billion for increases operating and uncompensated care and $506 million for high-cost technologies.
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Wage index:agency adjusted the Medicare wage indexadjusting labor market area delineations, increasing wage index values for hospitals in low-wage areas in a budget-neutral framework and modifying the “rural floor” provision to try to reduce wage index disparities. CMS also implemented a 5% cap on annual wage index decreases to try to limit the impact.
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DSH payments: CMS will distribute roughly $8.3 billion in DSH payments in fiscal 2021, a decrease of about $60 million from fiscal 2020 using a single year of data on uncompensated care costs to distribute DSH funds.
CMS FY 2021 IPPS Final Rule; https://www.cms.gov/medicare/acute-inpatient-pps/fy-2021-ipps-final-rule-home-page
California Assembly Bill to Limit Private Equity Healthcare Investments Stalls
A California bill to control health-care mergers stalled in the state legislature last Monday night. SB-977 would have given the state attorney general the power to review and potentially block acquisitions of health-care facilities or providers by private-equity firms, hedge funds and large health-care systems.
Chris Cumming “California Bill to Rein In Private-Equity Health-Care Buyouts Dies” Wall Street Journal September 4, 2020; https://www.wsj.com/articles/california-bill-to-rein-in-private-equity-health-care-buyouts-dies-11599250052
