Original Publish Date: August 4, 2020
“Covid-19 is not the great equalizer, it's the great revealer. It has revealed social and economic inequalities to the public. The silver lining of the pandemic is that the public can see this now." -- Edward Shin, MD, CEO & Co-Founder, Quality Reviews
“Any individual in this pandemic, without healthcare, is a threat to all of us." -- Carl Dickerson, Founder, Dickerson Employee Benefits
The coronavirus pandemic has heaped inconceivable loss on Americans. Acute, and potentially longer term structural, financial ramifications have impacted individuals to institutions. The federal government has spent trillions in relief dollars to date and is now considering a fifth round of relief funds in an attempt and to avert a potential depression and jump-start the economy. Only tough choices lie ahead as it is clear that the lack of a coordinated response to the novel coronavirus epidemic is creating confusion at state and local levels, potentially hampering the ability to get infections under control.
Among the sectors experiencing significant physical, psychological, and financial damage is the hospital industry, where structural gaps in preparation, supplies, coverage, and public health are on display daily. We interviewed several healthcare experts from across the country, including senior leadership from health systems, hospitals, health plans and insurers, physician groups, post-acute, healthcare attorneys, and ancillary providers to gain their perspectives on the impacts of the Covid-19 epidemic to date and what the future may hold.
Below are six key insights from these interviews; the themes focus on the post-pandemic bare market realities and strategic imperatives for hospitals and health systems in a cash-starved environment. While many of these issues are not new and existed pre-Covid-19, experts underscored how Covid-19 has amplified their effects:
1) Hospitals need to revise their strategic plans now, be nimble and implement change faster.
Unfortunately, this needs to happen at a time when hospitals have “all hands on deck” to fight the pandemic. Many institutions have experienced a haunting depth of loss and crisis. For some, it will take years to recover. Healthcare is changing faster than we have ever experienced, and hospitals need to create new revenue streams and move “up the value and premium chain” if they want to stay relevant and financially healthy. If hospitals do not begin to plan and make adjustments to their core business model and infrastructure now, they may not survive the next 18 months. The government most likely cannot and will not continue the current levels of financial support.
Despite the fact that inpatient and procedure volume in many parts of the country have recovered to approximately 90 percent of pre-Covid-19, emergency department volume remains low in many geographies. As summer comes to an end there will likely need to be substantial capacity and capability to monitor and treat patients at home and in the community as hospitals again become Covid-19 hotspots. Health plans have done well financially during the first one or two waves of Covid-19 in the US, hospitals and health systems need to create value-add care models with their physicians, home health and post-acute partners in order to gain access to more of the premium dollar through value-based payment (VBP) arrangements with payors.
2) Organizations need to prepare for the Covid-19 delayed effects and the aftershocks that will impact systems in the coming years.
Covid-19 has accelerated and amplified existing threats to hospitals, such as the shift of care outside of the hospital, declines in revenues, and increased competition. It also triggered some consequences we will see a few years from now. These include premium increases from patient and employee Covid-19 suits, outmigration from densely populated cities because of the ability to work remotely, workforce shortages as aging doctors, and nurses opt for retirement. There will also be network disruptions caused by bankruptcies, such as among post-acute providers, which will reduce patient discharge options.
3) Health systems that want to mitigate the risk of a revenue portfolio reliant on fee-for-service must start building the requisite infrastructure to manage total cost of care.
The need to develop high value population health management infrastructure and competencies in parallel with value-creating provider networks is not new; however the Covid-19 crisis has intensified the need to do so and do so quickly. In most communities, providers and payors will need to collaborate because no one organization will have the capital nor existing infrastructure and network to succeed alone, particularly at the speed required amidst the Covid-19 crisis.
Hospitals and health systems should explore new integrated delivery system alignments in relevant markets such as Medicare Direct Contracting, Medicare and commercial ACOs, and bundled payments. As the number of Medicare beneficiaries continues to rise, the federal government will make Medicare Advantage a more attractive option to recipients.
The continued shifting of risk from CMS, states and employers to health plans and providers is predictable and the acceleration of current trends. State revenues are falling, causing budget crises across the country, at the very time Medicaid enrollments are increasing, exacerbating the crisis. Stressed government budgets for Medicaid will further accelerate the penetration of Managed Medicaid and programs to manage the Medicaid and Medicare dual eligible who represent the most expense and cost savings opportunity. Forty-one states have already shifted payor risk to private health plans. It is likely that almost all Medicaid will become managed care, while more states will push health plans to launch products for dual eligible premium coordination such as D-SNP products.
Employers meanwhile will be expecting providers and health plans to seriously bend the cost curve in order to make employer sponsored commercial and self-insured employer products more affordable amidst historic challenges to many industries from the impacts of Covid-19.
4) Health systems need to adapt cost structures to survive on publicly subsidized rates.
With massive numbers of layoffs and more furloughs becoming permanent, the payor mix has already begun to and will further deteriorate for many hospitals. The accelerated declines of patients covered by commercial health insurance will restrict hospitals’ ability to “cost shift” to offset low rates from public payors for Medicaid and Medicare.Hospitals must toggle strategically between efforts to improve volume for profitable services, manage debt, and maintain compliance with loan covenants. Organizations will need to re-engineer costs far beyond the run-of-the-mill cyclical rightsizing that occurs in the industry. For many service volumes, payor mix, and future government funding, patient preferences, community providers, and post-acute have changed and will continue to evolve. Hospitals will need to become far more efficient than previously envisioned, and regularly review opportunities to deliver care and operate economically.
5) Hospitals and health systems need to reinforce their relationships with community service organizations that support socially disadvantaged populations and integrate these into VBP arrangements and networks. Hospitals will continue to be on the front line for public health and addressing social determinants of health (SDoH). The Covid-19 pandemic exposed disparities in healthcare access, affordability, and risk that disproportionately affect low-income and minority populations. Older, sicker, and poorer people have suffered the illness and death of the initial wave disproportionately. Millions of lost jobs will occasion more hardship and strain on social services. Increased enrollment in Medicaid, lower reimbursement, more SDoH demands, and reduced provider networks will exacerbate strains on our healthcare safety net.
Getting out ahead and creating solutions will include the need not only to understand SDoH drivers of total cost of care and quality care gap challenges but also the defining of specific non-medical services with key performance indicators, as well as the community–based organizations (CBO) capable of delivering consistently, for a reasonable price point and with the ability to share data to help close quality care gaps. Forward thinking health plans and hospitals are already working to create contracted networks of CBOs that can be integrated into VBP arrangements.
6) The hospital industry must lobby to expand public health capabilities, including the use of technology. While technology holds the potential to boost future public health preparedness, it is not a substitute for public health funding. Digital health technologies can provide powerful tools for public health officials and the public. By helping public health officials reach and communicate quickly with a vast number of people, mobile devices and virtual health technology may reach patients that traditional forms of health care do not. However, unless funding, planning, and implementation of necessary infrastructure for community public health are reinstituted, the next health crisis will again find us ill prepared, underfunded, and overwhelmed. Whether federal or state, the government must hold itself accountable for funding, pricing, supplying and deploying the essential technology and equipment to combat disaster on a broad societal scale.
Summary: While these expert-recommended actions may not be new, the magnitude, the urgency, the shortened reevaluation cycles, and the requisite speed of execution, are at a degree of intensity few organizations have experienced. Amid scarce dollars, constricted healthcare budgets, and reduced demand, the crisis has triggered reverberations that will ripple through the markets for years to come. Hospitals and health system must revise their strategic plans, evaluate with whom they must partner, and how they can mitigate dependence on a fee-for-service revenue portfolio.
Tom Dougherty, FACHE and Allen Miller are Principals with COPE Health Solutions. Mr. Dougherty can be reached at tdougherty@copehealthsolutions.com and 909-238-9898. Mr. Miller can be reached at amiller@copehealthsolutions.com and 310-386-5812.