By Heidi Russell, M.D., Ph.D.
Associate Professor
Department of Pediatrics and Center for Medical Ethics and Health Policy
Baylor College of Medicine
and
Vivian Ho, Ph.D.
James A. Baker III Institute Chair in Health Economics
The federal government has enacted the Coronavirus Aid, Relief, and Economic Security Act, (CARES), which is the third large-scale federal funding package in response to the novel coronavirus (Covid-19) outbreak. The $2 trillion package includes cash payments to individuals earning under $75,000, extra unemployment payments, and financial assistance to businesses. The package appropriately includes hundreds of billions of dollars of funding for the health care sector to fight the pandemic.
The legislation adds $100 billion in funds to the Public Health and Social Services Emergency Fund to pay health care providers for health care related expenses or lost revenues that are attributable to coronavirus. The funds may only be used to reimburse for expenses and lost revenues that have not been reimbursed from other sources. Eligible health care providers comprise for-profit, not-for-profit, and public entities, as well Medicare or Medicaid enrolled suppliers and providers that provide diagnoses, testing, or care for individuals with possible or actual cases of Covid–19.
One may be wondering why health care providers need substantial additional funding for care of Covid-19 patients, when they can already bill government programs and private insurers for services. An analysis issued on March 24 by Strata Decision Technology (Strata) estimated that most U.S. health systems would lose an average of $2,800 per Covid-19 patient. The expected costs of these admissions were based on clinical experiences of caring for patients with Covid-19 in Europe, China, and per the Center for Disease Control. Strata used these clinical experiences to identify patients in 127 U.S. hospitals with conditions and complications that matched those for Covid-19 patients (e.g. pneumonia, acute respiratory distress syndrome, sepsis). Hospital reimbursement for patients covered by Medicare, Medicaid or private health insurance were then calculated. Strata recommended a 35% increase in Medicare reimbursement for Covid-19 admissions to overcome the anticipated losses. The CARES legislation includes a 20% add-on to payments for Medicare patients with Covid-19, so additional funding is needed to allow hospitals to fully cover their costs.
Care for patients admitted with Covid-19 is predicted to exceed the costs of reimbursement in part because of steps required to prevent the spread of the disease. Donning and disposing of personal protective equipment (PPE) and increased cleaning to prevent viral spread is labor intensive. Hospitals are restructuring patient flow so Covid-19 patients are identified quickly and isolated, often in more costly specialty rooms that allow air to be circulated away from other patients. The number of patients a nurse or respiratory therapist cares for at one time relates to how critically ill their patients are. Hospitals are separating staffing into those caring for patients with Covid-19 and those who are not. Administrative costs were approximately 8% of overall health care expenditures in the U.S. prior to the pandemic. As the pandemic moves forward, health care systems are spending increasing administrative resources on planning, allocating limited resources, educating medical providers, and other non-reimbursable administrative activities.
Smaller community hospitals, particularly those in rural areas, will be equipped to manage only the mildest cases of Covid-19 and will transfer sicker patients to centers prepared for the most intensely ill. Therefore, the burden of Covid-19 care will fall unequally across U.S. health care systems. Patients with underlying illnesses, such as chronic obstructive pulmonary disease and heart disease, are always more complicated and costly to care for. These are the majority of patients being hospitalized with Covid-19. Strata’s analysis suggests that large teaching hospitals with the ability to admit more patients, particularly the sickest patients, have the potential for greater total losses during this crisis.
Profit margins for not-for-profit hospitals, the majority of U.S. hospitals, are already at a median value of 2.1 percent in 2018. Simultaneously, elective procedures across the country are being postponed to free up space, personnel, and PPE for Covid-19 care while also reducing the chance that asymptomatic persons with SARS-CoV-2 enter hospitals. Multiple elective procedures such as heart surgery and joint replacements can be highly profitable for most hospitals. Cardiac valve replacement surgery yielded profits well over $10,000 per patient even back in 2008. Health care systems rely heavily on revenues from these select highly profitable procedures to subsidize treatment for uninsured patients as well as treatments where reimbursement rates do not cover their costs. While hospitals will eventually be able to resume elective procedures, many will be facing several months of significant financial losses they will never recover.
It is extremely difficult to forecast the number of coronavirus hospitalizations that will occur over the coming year, although one study estimates that 20.6 million U.S. residents will eventually require hospitalization. Assuming the pandemic lasts 18 months, the annual number of Covid-19 related hospitalizations is 13.7 million. The American Hospital Association counted the total number of admissions to U.S. hospitals in 2018 to be 36.4 million. Caring for 13.7 million inpatients at a loss of $2,800 amounts to $38.4 billion to hospitals. One must add to this amount the lost revenues from millions of other elective inpatient admissions, as well as outpatient services not performed during the pandemic. Under the CARES act, physicians would be eligible for reimbursements from the Public Health and Social Services Emergency Fund as well. Hospital expenditures accounted for 33% and physicians represented 20% of $3.65 trillion in U.S. health care expenditures in 2018. Together, these figures imply that $100 billion may be woefully inadequate to compensate health care providers for unreimbursed expenses and lost revenue from the pandemic.
As Kaiser Health News reports, the $100 billion will be administered by the U.S. Department of Health and Human Services’ assistant secretary for preparedness and response. The KHN article further quotes a health policy consultant who states that the preparedness office “does not have the capacity to run such a massive provider payment program.” With large numbers of hospitals and physician groups vying for compensation, Congress will need to take further action to ensure that the funds are distributed in a manner that preserves the strength and preparedness of our health care system for all patients’ needs in the future.
Finally, one must consider the implications the pandemic will have on the overall health and costs of care for patients without Covid-19. Inadequate numbers of ventilators has prompted difficult discussions about how to best use these potentially life-saving machines, but Covid-19 patients are not the only patients who may benefit from them. Drug shortages, because demand is increasing faster that the supply chain can respond, are beginning to surface and affect not only patients with Covid-19 but those who rely of these drug for management of their existing conditions. The supply of hydroxychloroquine, a drug used to treat malaria, quickly ran low after the announcement that it was being tested in clinical trials against Covid-19. Providers began giving hydroxychloroquine to even more patients with Covid-19 who were not participating in the clinical trials. In doing so, patients who are known to benefit from the drug have experienced difficulty getting it and are at risk for more severe medical problems. Other drugs (e.g. bronchodilators) regularly needed by patients with asthma or other chronic lung problems are also increasingly needed to treat serious Covid-19 complications. The cancellation of elective procedures implies that other non-urgent care may be postponed. Delaying diagnoses or treatment may result in more aggressive care or worse outcomes down the road, a fundamental tenant behind preventative care. Similarly, postponing elective procedures may mean that treatment and recovery become more difficult in the future. Mental health affects physical health, both will decline because of social isolation and stress. Some of these issues are unavoidable, but remain important as we consider the full extent of the impacts of this crisis.
How long is our current system sustainable? Surely not until a vaccine or effective treatment is developed. Financial losses for systems caring for Covid-19 patients have the potential to be devastating. The extraordinarily high health care costs resulting from the Covid-19 pandemic will force a new debate regarding how much health care providers should be reimbursed for their services, why U.S health care costs so high, and what amount taxpayers are willing to accept in order to maintain national health security.th