Will Covid-19 Break the US Healthcare System?

COVID-19 has exposed and exacerbated chronic weaknesses in the business model of the American healthcare system. Facing cancellations of elective procedures, astronomical prices for personal protective equipment (PPE), and millions of newly uninsured patients, hospitals across the country are in jeopardy of shutting down.

Twenty-five percent of rural hospitals are at high-risk of closing, of which over 80 percent are considered essential to their communities, according to Guidehouse. The American Hospital Association (AHA) predicts that U.S. hospitals and health systems will lose over $200 billion between March 1 and June 30.

On May 6, the Corporations and Society Initiative (CASI) hosted a panel to discuss these challenges with Stanford Medicine Professor Dr. Kevin Schulman, and Dr. Elisabeth Rosenthal, editor-in-chief of Kaiser Health News, moderated by Karin Underwood, founder of digital health nonprofit CoachMe Health.

Challenges of private healthcare

Private insurance drives hospital revenues

Hospitals are incentivized to maximize profits by providing privately-insured elective procedures, which are reimbursed at higher rates than procedures covered by public programs, such as Medicare and Medicaid. According to RAND, self-insured employers pay 3-4 times as much for hospital services and 4-6 times as much for outpatient services as Medicare. Self-insured employers are firms that assume the financial risk of paying for their employees’ healthcare out-of-pocket. With many of these procedures on hold, hospitals are hemorrhaging revenue. 

Hospitals can’t simply flip the switch on elective procedures as states open back up. Ramping up is a daunting task, requiring hospitals to reconfigure spaces, restock supplies, and bring back furloughed staff, all while putting contingency plans in place in case of a second surge. 

To make matters worse, around 27 million Americans have lost employer-sponsored insurance (ESI). Approximately 80 percent (21 million) of those are now eligible for publicly-subsidized insurance, according to the Kaiser Family Foundation. We could see “very large shifts from commercially insured patients to public health plans”, according to Dr. Schulman. This will turn the hospital business model on its head, with fewer patients covered by private insurers that tend to pay more for procedures than public insurers. 

Insurers seldom covered telemedicine and digital health services pre-COVID

Telemedicine and digital health were also among the services that typically fell outside of insurance coverage and were “somewhat of a hobby” for hospitals, according to Dr. Schulman. Federal and state regulators have relaxed restrictions on – and in some cases allowed for reimbursement of – telemedicine in response to the pandemic. 

Health systems have rapidly transitioned to telemedicine; within two weeks, Stanford Primary Care scaled a nascent video visit program in their two Express Care urgent care centers from 5 percent to 80 percent of total visits. “We now have a proof of concept that there are different ways to bring healthcare to the public,” Dr. Schulman argues. 

While these are temporary waivers designated for the pandemic, telemedicine is most likely here to stay. There will be enormous pushback against people who want to “put the genie back in the bottle,” says Dr. Schulman. But discerning which telemedicine services provide quality care, and which just provide a profit, will also be challenging. As Dr. Rosenthal put it, “there’s good virtual medicine and telemedicine, and there’s profitable virtual medicine and telemedicine, and they’re not always the same.”

Supply chain deficiencies promote competition between hospitals 

The race for PPE among hospitals has bared critical gaps in the U.S. healthcare system’s just-in-time supply chain. The cost of PPE is skyrocketing up by 1000 percent in some places. The hundreds of players that make up the health system are now competing for supplies – “it’s every man for himself,” says Dr. Rosenthal. 

The global supply chain is not itself the problem, the issue is that “no one is accountable for the supply chain” in the private health system and that it is “solely focused on cost”, says Dr. Schulman. “If Apple told you that they couldn’t deliver iPhones next quarter, shareholders would be pretty upset.” The same cannot be said for PPE manufacturers and private hospitals, who won’t face consequences for the supply shortage. If the private health system cannot manage its supply chain, we may need a public solution, regulation, or tax policy to ensure a sufficient stockpile is available when crises strike. 

Potential policy solutions during COVID-19 and beyond

Bailing out hospitals 

Hospitals received around $100 billion in COVID-19 relief funds. Hospitals need this funding not to cover the cost of COVID-19 patients, but because they are unable to tap into their “cash cows” (elective, privately insured procedures), according to Dr. Rosenthal. Hospitals have invested over the past several decades in expensive, new in-patient buildings to support these procedures that are now largely vacant, which calls into question whether hospital managers have prioritized investments appropriately.  

Should we really “bail-out managers for bad decisions,” asks Dr. Schulman, only to return to ever-increasing costs of private health insurance? Instead, can we put in place a “pathway to a different model where they [managers] are accountable for the cost of care”?

It’s not just hospitals. Anticipating losses in the wake of COVID-19, “insurers are coming to Congress hat in hand” too, says Dr. Rosenthal. Policymakers need to be cautious and transparent about how they dispense relief. Insurers may need to pay more than anticipated for COVID-19 patients, but they are also paying out a lot less due to the postponement of elective procedures. UnitedHealth Group has said that the amount of money it is saving from the decline in elective care is now more than the amount it is reimbursing hospitals for treating coronavirus. 

Medicare for All? 

The inextricable link between employment and insurance is a “big flaw” of the U.S. system, says Dr. Rosenthal. ESI is a relic of the World War II era – when employers offered health insurance to employees as a non-cash benefit because the federal government barred companies from raising wages. 

COVID-19 is the ultimate litmus test of the long-term viability of ESI, forcing the U.S. to reckon with how it pays for healthcare. Medicare-for-All is one option, but what would that look like? “Hospitals would be in total shock” if the U.S. adopted Medicare-for-All, says Dr. Schulman. That’s because the health system is not truly focused on delivering value, according to Dr. Rosenthal, it is “hard-wired to deliver a kind of care that is not what we need.” Rewiring that system is a daunting task, but the business model is proving inadequate to meet the needs of its intended beneficiaries – the American public.

Increased oversight of private health system

No one in government is truly in charge of governing the private health system. It is unclear whether federal and state governments even had an estimate of private health system capacity when the pandemic struck. Dr. Rosenthal and Dr. Schulman both called for a national governance mechanism for managing the private health system. This could include requirements for private health systems to improve coordination and preparation, report capacity numbers, and ensure and acquire an adequate supply of PPE at price points that don’t break the bank. 

If we want to see pandemic preparedness and value-based care in the U.S., and not just care that is, as Dr. Rosenthal puts it, “governed by what we pay for”, we need the right policy frameworks, regulatory oversight, and incentive alignment. 

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