The coronavirus disease 2019 (COVID-19) pandemic has revealed gaping holes in the US health care system. Hospitals and physicians are struggling to address the rapid shift in the demand for services while hemorrhaging financial resources because in most cases, the primary business model anticipated a steady flow of fee-for-service payments.
Hospitals and physicians are already feeling the pain. Despite a rapid increase in the demand for services related to COVID-19, most other aspects of health care delivery have come to a standstill. Some of this was intentional, resulting from cancelation of elective procedures to create hospital surge capacity for those seriously ill with COVID-19. The reduction of services affects not only those physicians who directly provide these procedures, but also those involved in ancillary services. For example, use of imaging is projected to decrease by 50% to 70% over the coming months in association with COVID-19.
Less anticipated has been the decline during the COVID-19 pandemic in medical service use related to what is considered nondiscretionary care, such as that for myocardial infarctions and cerebral vascular accidents. The assumption, supported by reports of higher than usual in-home death rates, is that individuals are doing all they can, and even risking death, to avoid going to the hospital in the midst of the pandemic.
Health care practitioners have been resourceful, quickly shifting service delivery to telehealth where they have been able to obtain reimbursement from Medicare and other payers. But on a volume basis, it has not fully replaced pre-COVID-19 levels of ambulatory care services. Across the country, about 30% of ambulatory care visits are now furnished via telehealth, but the combined volume of in-person and telehealth visits is about 40% of what it was before the pandemic.
Losses and Layoffs
Health systems were rapidly expanding prior to the emergency of COVID-19 by buying physician practices, but now—during a public health crisis when physicians would seemingly be in high demand—health systems are laying off physicians and other health care workers to reduce expenses and address financial losses. Financial losses are resulting from significant reductions in patient volume combined with increased costs for supplies to support heightened demand for ventilators, telehealth, and personal protective equipment.
The situation is no better for physicians working in independent practices. According to a national survey conducted in early April 2020, 97% of the 724 responding physicians report a negative financial effect related to COVID-19. More than half of surveyed practices expected to lay off staff by early May 2020.
The federal government has taken some action to try to prevent a financial meltdown of the health care delivery system. As a part of a series of new federal laws, there are public funds directed toward hospitals and physicians. The largest amount was included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020. It created a $100 billion Public Health and Social Services Emergency Fund. On April 23, 2020, Congress voted to add another $75 billion to the fund.
Some of these funds are designated for the excess costs related to the treatment of COVID-19, but most of it is for financial losses hospitals and physicians are incurring by not being able to generate fee-for-service income from what had been their usual activities. Within 1 month of states issuing shelter-in-place orders, $30 billion was distributed from the Public Health and Social Services Emergency Fund to hospitals and physicians on a proportional basis (distributed according to their 2018 Medicare fee-for-service claims). There were no past or future service requirements for the receipt of these funds. To some extent, this initial outlay from the fund replaced much of what Medicare would have spent for a month of fee-for-service claims had COVID-19 not occurred. As the shelter-in-place orders are extended, the US Department of Health and Human Services has outlined plans to make additional outlays from the fund. In addition to using the prior expenditure patterns in Medicare, future outlays will target hospitals and physicians most affected by COVID-19, as well as those in more rural areas. Pediatricians, obstetricians, psychiatrists, and those who are part of the medical safety net whose reimbursement is less tightly associated with the Medicare program have largely been excluded from the federal support to this point.
While the public sector is attempting to stabilize the health care delivery system, private insurers have been notably absent. Like public programs, private insurers have absorbed unexpected costs related to COVID-19, but they must also have substantial savings related to the reduction in elective procedures and the widespread decreased demand for medical care outside COVID-19. By not maintaining their anticipated flow of funds to hospitals and physicians, private insurers are contributing to the risk of a health care delivery system financial meltdown.
A Fundamental Flaw of Fee-for-Service
Paying clinicians and health care facilities regardless of whether they provide services is a reasonable short-term strategy to stabilize the financing of the health care delivery system, but it is not sustainable and will not correct a fundamental flaw of fee-for-service payment. Fee-for-service depends on volume, not the value it delivers in meeting the needs of a population. The delivery systems associated with Kaiser Permanente and the UK’s National Health Service are not overwhelmed to the same degree as the US health care system as a whole. These systems may require additional funds to treat an unanticipated epidemic, but there is not the extra burden of having to bail out hospitals and physicians who rely on fee-for-service payments. Hospitals and physicians in these systems have already received budgeted funds based on the size and characteristics of their patient populations.
The allocation of funds from the Public Health and Social Services Emergency Fund untethered to actual service delivery is a step away from fee-for-service and toward a budget. Rather than retreating to a fee-for-service payment system after COVID-19, the time may be ripe to take additional steps toward a population-based payment system.
As a next step, all payers, not just public payers, should immediately contribute their fair share to ensure the financial health of the health care delivery system. Once payments are separated from services, payers should work to create aligned expectations for how to responsibly grow these budgets over time and to have hospitals and physicians demonstrate that they are using budgeted funds to furnish necessary services for a defined population of patients.
Open Access: This is an open access article distributed under the terms of the CC-BY License.
Corresponding Author: Andrew Bindman, MD, Philip R. Lee Institute for Health Policy Studies, University of California, 3333 California St, San Francisco, CA 94118 (email@example.com).
Conflict of Interest Disclosures: None reported.
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Bindman A. Avoiding a Health Care Financial Meltdown. JAMA Health Forum. 2020;1(5):e200591. doi:10.1001/jamahealthforum.2020.0591