The Questions that Must be Asked

This morning, Covid-19 deaths reached 79,528 in the U.S. and 282,872 globally. They’re staggering numbers none imagined.

Each day, media reports this death tally and spotlights the heroics of our frontline caregivers. They update prospects for vaccines and drugs and the status of our social distancing. But the question they’re not asking is this: what will the coronavirus mean for the future of the U.S. delivery system?  It gets scant attention. It likely will. Here’s why:

Negative Margins

The health system is dependent on employer-sponsored health insurance: it covers 160 million in our population and produces 90% of operating margins for most hospitals, medical practices, and other providers. Friday’s jobs report from the Bureau of Labor Statistics (BLS) for April was a body blow: since February, the economy has shed 33,000,000 jobs–20.5 million last month alone including 1.4 million healthcare workers. The official unemployment rate is 14.7%, but the real rate per BLS is 22.8% when those who’ve dropped out of the labor market are added. According to the Robert Wood Johnson Foundation, an estimated 25-43 million people could lose their employer-sponsored health insurance coverage before things settle. Some will land in state Medicaid programs. Some will buy individual plans they can afford, and as many as half will go without. That means negative operating margins for months ahead and many that don’t survive. That’s not sustainable.

Mounting Federal Debt Obligations

Congress has authorized more than $2.4 trillion in emergency relief for individuals and businesses, including a $175 billion Provider Relief Fund earmarked to medical groups, hospitals, nursing homes and other providers, of which approximately $72.4B has already been accounted for. Some are questioning the method for allocating some of these funds since they disproportionately benefit certain groups given their Medicare customer base, where they operate geographically, and their overall financial wellbeing among other factors. And we can’t forget about the $100B Advance Medicare Payments program- which by the way had to be paused- even though it’s currently being treated as a loan. In the midst of all this, hospital losses alone are already projected to reach $200 billion by the end of June. And complicating things further, these earmarked funds- in combination with annual federal deficits- have raised our national debt to $24.97 trillion, or 122% of our total GDP. That means taxpayers will be paying 8.5% of our federal budget on interest payments. And, the national debt which now stands at $75,896 per capita could go even higher if a fourth relief package is authorized, or consumer spending stalls, or a second surge Covid-19 war has to be waged.

Attention to finding vaccines and treatments for the Covid-19 will not soon dissipate but economic recovery and getting people back to work will share the spotlight alongside. For the delivery system– hospitals, nursing facilities, ambulatory clinics, and medical practices—that means a complete re-set of plans and priorities to stay alive and solvent. The public debate about the national debt will inevitably lead to uncomfortable questions about the efficiency and effectiveness of the delivery system. The good will won in waging the coronavirus war will be short-lived as fiscal hawks challenge the worthwhileness of the health system’s oversized impact on the economy.

Until 8 weeks ago, the focus of our delivery system was value: how to define it and how to deliver it so that costs, prices, and outcomes are aligned and readily transparent. We were struggling with price transparency, interoperability, and alternative payment models. And vertical integrators (Optum, CVS, et al) and private equity were stirring the pot. Temporarily, these are on hold; the attention of lawmakers and the public is elsewhere. Will they re-emerge? It’s likely, but not in their current forms.

So, the questions leaders must ask are these:

In the near term, are the earmarked funds for healthcare enough? Will we rethink how the unallocated portion of the Provider Relief Fund is distributed? Will the Advance Medicare Payments program be converted into grants?

And more broadly, is a return to the past the right focus for the delivery system’s future? Given negative margins and soaring federal debt, should other models be studied, and adjustment made?

That’s where we are. Hopefully, the coronavirus pandemic will force serious consideration of these questions.

They deserve answers.

Paul

P.S. My brother, Gary, operates assisted living facilities aka GoodWorks Unlimited. His business model is unorthodox, shunning corporatization and pretense for mission and purpose. Last week, he sent this note to me “This has been tough; I was holding the hand of a resident the other day while he cried and asked me if he was going to die. Our staff has been phenomenal– it is an honor to lead through this valley.” I am proud of my brother and the countless hero’s in our hospitals and nursing facilities who are holding the hands of our moms, dads, brothers, and sisters offering hope as each faces coronavirus despair.
 
 
 
 

RESOURCES

National Center for Health Workforce Analysis https://bhw.hrsa.gov/sites/default/files/bhw/health-workforce-analysis/research/hrsa-us-health-workforce-chartbook-in-brief.pdf

“How the COVID-19 Recession Could Affect Health Insurance Coverage” Robert Wood Johnson Foundation May 4,2020 https://www.rwjf.org/en/library/research/2020/05/how-the-covid-19-recession-could-affect-health-insurance-coverage.html

David U. Himmelstein, MD; Steffie Woolhandler, MD, MPH “Health Insurance Status and Risk Factors for Poor Outcomes With COVID-19 Among U.S. Health Care Workers: A Cross-sectional Study” Annals of Internal Medicine April 28, 2020. DOI: 10.7326/M20-1874
 
Health and Human Services: CARES Act Provider Relief Fund; https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/index.html
 
 

CORONAVIRUS NEWS

April Jobs Report: 20.5 million Jobs Lost—Highest in History

The U.S. Department of Labor Released its April report Friday:

• Total jobless claims were 20.5 million in April vs. 700,000 in March.

• Healthcare lost 1.4 million jobs in April vs 42,500 jobs lost in March. (82% in ambulatory settings)

• The 14.7%unemployment rate is the highest since 1948 and is expected to go higher. Unemployment in 1933, the Great Depression, reached 24.9%. In February, it was 3.5%–a 50-year low. When those who are discouraged, or those whose hours were cut are added, the total is 22.8%.

The leisure and hospitality industry lost 7.7 million jobs in April; retail was second with 2.1 million jobs lost. places. Healthcare job losses also trailed education, professional and business services.
“Employment Situation Summary” U.S. Bureau of Labor Statistics May 8, 2020 https://www.bls.gov/news.release/empsit.nr0.htm

AHA Statement

“We estimate that hospitals and health systems will receive just $22 billion (or 44%) of the $50 billion in funds made available to date. In other words, hospitals and health systems that are supporting the nurses and physicians to care for patients, building new sites of care to minimize the spread of the virus, and purchasing the ventilators, drugs, and supplies to care for the critically ill, received less than a fair share given their role. We would appreciate that HHS better target funding for hospitals and health systems, which serve as the nation’s primary source of COVID-19 testing and treatment.”

Rick Pollack, President and Chief Executive Officer, American Hospital Association letter to Alex Azar, Secretary, U.S. Department of Health and Human Services April 27, 2020

AHA:  COVID-19 will Cost Hospitals $200 Billion through June

In its report last week, the American Hospital Association calculated short-term costs associated with the effect of COVID-19 hospitalizations on hospital costs for March-June, 2020. They estimate losses will be $202.6 billion in losses, or an average of $50.7 billion per month:

• Net Financial Impact of COVID-19 Hospitalizations: $36.6 billion

• Total Revenue Losses from Cancelled Surgeries and Other Service: $161.4 billion

• Additional Costs Associated with Purchasing Needed PP: $2.4 billion

• Costs of Additional Support Some Hospitals are Providing to their Front-line Worker: $2.2 billion

Note: The AHA study is well-done but incomplete. While appropriately focused on projecting hospital losses from Covid-19, it does not address losses associated with employed physicians and allied health programs like dentistry that have been hard hit.

“Hospitals and Health Systems Face Unprecedented Financial Pressures Due to COVID-1” American Hospital Association May 5, 2020 https://www.aha.org/system/files/media/file/2020/05/aha-covid19-financial-impact-0520-FINAL.pdf

Crowe Analysis: Hospital losses $1.4 billion/day

Per the Crowe analysis that examined finances for 1100 hospitals in 45 states for the period between March 1 and April 15:

• “Hospital revenue is dropping by an average of $1.4 billion per day as COVID-19 continues to impact patient volumes, according to a new Crowe RCA Benchmarking analysis. With the exception of New York City and San Francisco – two of the largest COVID-19 hotspots – health systems across the country experienced an average decline in patient volume of 56% between March 1, 2020, and April 15, 2020.”

• Utilization: Inpatient admissions -30%, emergency department visits -40%, observation services -47%, outpatient ancillary services -62%, outpatient surgeries -71%

• Payer mix: self-pay +8.4%

“Hospital volumes hit unprecedented lows $1.4B daily revenue losses mean long recovery ahead” Crowe RCA Benchmarking AnalysiMay 2020; https://www.crowe.com/insights/asset/h/hospital-volumes-hit-unprecedented-lows

Analysis: Wide Variability in Hospital Viability before Covid-19

The researchers used the RAND Corporation Healthcare Provider Cost Reporting Information System (HCRIS) files and American Hospital Association Annual Survey to analyze hospital financial performance in 2018. They found wide disparity in the financial viability of hospitals in 2018 (pre-Covid-19) as reflected below:
Operating Margins:

• Mean: 1.1%

• 25th Percentile: -4.4%

• 75th Percentile: 8.4%

Current Asset-to-Liability Ratio:

• Mean: 3.6

• 25th Percentile: 1.3

• 75th Percentile: 3.5

Days Cash-On-Hand

• Mean: 120.9

• 25th Percentile:7.6

• 75th Percentile: 158.2

Days in Net Accounts Receivable

• Mean: 58.2

• 25th Percentile:41.4

• 75th Percentile:60.2

Outpatient Share of Revenue (%)

• Mean:62.9%

• 25th Percentile:49.9%

• 75th Percentile:76.9%

Surgical Procedures Per 100 Discharges

• Mean:57.1

• 25th Percentile:19.7

• 75th Percentile:56.8

“The COVID-19 pandemic represents an unprecedented medical and economic challenge for the US health care system. In the absence of robust and sustained governmental support, almost all hospitals will experience financial difficulties. But hospitals that are smaller, independent, rural, and have critical access status are particularly at risk. Policymakers should provide dedicated support to these hospitals to access CARES Act funds and consider allocating additional funding to them during the COVID-19 pandemic.”

Khullar et al  “COVID-19 and the Financial Health of US Hospitals” JAMA. May 4, 2020. doi:10.1001/jama.2020.6269

New York Times: Long-term Care Facilities are a Third of Coronavirus Deaths

Residents in long-term care facilities represent 11% of total infected and 35% of deaths attributed to Covid-19. In 14 states, the number of residents and workers who have died accounts for more than half of all deaths from the virus. CMS projects that 1.6 million to 3.8 million infections occur each year in the 15,600 U.S. nursing homes, and account for 388,000 deaths.

Yourish et al “Coronavirus Deaths Are Nursing Home Residents or Workers” New York Times May 10, 2020 https://www.nytimes.com/interactive/2020/05/09/us/coronavirus-cases-nursing-homes-us.html

 
Study: Orphan Drugs Work (For Those that can Afford Them)

Researchers compared the value of orphan and non-orphan drugs approved by the FDA from 1999 through 2015 finding that orphan drugs were five times more likely to offer a health benefit than other medicines but their median costs were substantially higher — $47,650 versus $2,870. As a result, payers spend 2.7 times more on an orphan drug than another medicine in order for a patient to gain an extra year of perfect health (Quality Adjusted Life Year)

“Our study suggests that orphan drugs often offer larger health gains than non-orphan drugs, but due to their substantially higher costs they tend to be less cost-effective than non-orphan drugs. Our findings highlight the challenge faced by health care payers to provide patients appropriate access to orphan drugs while achieving value from drug spending.”

Chambers JD1, Silver MC2, Berklein FC2, Cohen JT2, Neumann PJ “Orphan Drugs Offer Larger Health Gains but Less Favorable Cost-effectiveness than Non-orphan Drugs” J Gen Intern Med. 2020 Apr 13. doi: 10.1007/s11606-020-05805-2.

Medicaid not Factored in CARES Act Relief Funds so far

Congress set aside $175 billion in aid for health care facilities affected by the COVID-19 pandemic in the CARES Act. The first batch, $30 billion, sent out in mid-April, was tied to 2019 Medicare reimbursement levels, while the second tranche, $20 billion, was based on net patient revenue recorded on 2018 cost reports. To date, Medicaid coverage has not been a criterion: especially problematic to nursing home operators and safety net hospitals.

Last week, HHS asked states to compile information about their Medicaid rates for 2018 and 2019 suggesting movement toward a formal Medicaid relief round.

Spanko “As HHS Inches Closer to Medicaid Relief, CARES Act Continues to Cause Nursing Home Confusion” Skilled Nursing News May 5, 2020 https://skillednursingnews.com/2020/05/as-hhs-inches-closer-to-medicaid-relief-cares-act-continues-to-cause-nursing-home-confusion/

 
INDUSTRY NEWS

OIG: Medicare Coverage for Opioid Use Disorder Falls Short

With 80% of the Medicare Part D beneficiaries who are at-risk of misusing or overdosing on opioids receiving extreme amounts of the type of drug, HHS’ Office of the Inspector General recommends that CMS should. take a more active role in ensuring Medicare beneficiaries get access to treatment for opioid use disorder. Currently, only 7% of at-risk patients receive medication-assisted treatment.

Johnson “CMS should do more for the thousands at extreme risk of opioid addiction, OIG finds” Modern Healthcare May 7, 2020 https://www.modernhealthcare.com/government/cms-should-do-more-thousands-extreme-risk-opioid-addiction-oig-finds?utm_source=modern-healthcare-am-thursday&utm_medium=email&utm_campaign=20200507&utm_content=article3-readmore

Brookings: Food Insecurity Impacts One in Four Households

Per the most recent Brookings Covid Impact Survey:

• 23% of households said they lacked money to get enough food, compared with about 16% during the worst of the Great Recession.

• Among households with children, the share without enough food was 35%, up from about 21% in the previous downturn.

• In households with children 12 and younger, 17.4% reported the children themselves not eating enough, compared with 5.7% in the Great Recession.

Note: About 40% of food stamp households — the poorest — are left out of the benefit expansion. To qualify, a household must have an income of 130 percent of the poverty line or less, about $28,000 for three people. Before the pandemic, the average household had a total income of just over $10,000 and received a benefit of about $239 a month.

“Food Insecurity in the United States April 2020” COVID Impact Survey and The Hamilton Project/Future of the Middle-Class Initiative Survey of Mothers with Young Children https://www.brookings.edu/blog/up-front/2020/05/06/the-covid-19-crisis-has-already-left-too-many-children-hungry-in-america/ 

Children’s Health: Urgent Care Clinics More Accessible to Healthier Kids

In a cohort study of 4 133 238 children enrolled in Medicaid in 2017, the pediatric researchers found 5.4% had high reliance on urgent care. High reliance on urgent care was seen more often in healthy, nonminority, school-aged children. Primary care provider WCC, PCP non-WCC, and specialist reliance all declined with increasing UC use After adjusting for enrollee characteristics, children with high UC reliance had significantly lower use than children with low UC reliance of all other sources of outpatient care, both in the proportion accessing care at these sites. and in the number of visits. Although ED use remained steady across increasing UC use), children in the high UC reliance group had a lower proportion using the ED and fewer ED visits compared with children in the low UC reliance group

The number of UC centers increased from 6946 in 2015 to 9272 in 2019 per the Urgent Care Association.
Urgent Care Association of America.  The Essential Role of the Urgent Care Center in Population Health. Urgent Care Association of America; 2019.

Burns et al “Factors Associated with Urgent Care Reliance and Outpatient Health Care Use Among Children Enrolled in Medicaid” JAMA Netw Open May 6. 2020;3(5): e204185. doi:10.1001/jamanetworkopen.2020.4185