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EBLF Health+Benefits the June 2022 issue

Still Standing

The U.S. healthcare system passed a financial stress test. Kind of.
By David Smith Posted on May 31, 2022

And despite Dr. Anthony Fauci’s recent assertion that we are “out of the pandemic phase,” the lingering effects of the virus will remain a part of our society for years to come.

Early in the pandemic, healthcare industry watchers anticipated the country’s medical infrastructure collapse. This collapse would come to fruition through unsustainable volumes, a massive enrollment shift to the Medicaid program (reimbursing for services at a decidedly lower rate than commercial coverage), and a long-term decline in demand for higher-margin elective procedures.

But the health system did not collapse, and we will exit the pandemic stronger than before. Kind of.

The various pressures on the country’s health system over the last two years present a unique opportunity to conduct a stress test. This exercise enables us to understand the most vulnerable parts of our health infrastructure and provide insights for how to strengthen our important delivery institutions for the future. Let’s start by examining the parts of the system that buckled under the stress of COVID-19.

First, our nation’s clinical workforce has paid the heaviest price. Clinicians were ground down over the years preceding the pandemic despite increases in compensation for traveling nurses or through hiring agencies. From insufficient personal protective equipment to 100-hour work weeks, the country’s clinical workforce absorbed much of the system’s collective stress. The result? Current data clearly show an insufficient number of professionals for open positions and associated workforce gluts all over the country.

To our nation’s credit, the speed at which we developed an effective vaccine and federal funds allowed us to ‘buy’ our way to a faster exit from the pandemic with our health system intact.

The last two years have also damaged the country’s public health infrastructure, which was consistently tasked with making safety recommendations in the absence of complete data and rapidly changing information. The political environment, disinformation campaigns, and the occasional mistake from public health entities coalesced into a wholesale erosion of the public’s confidence in critical institutions.

Finally, the loss of life and its disproportionate ravaging of underserved communities is an indictment of the long-standing inequities that exist with our nation’s scarce health resources. COVID-19 did not present new information regarding the uneven distribution of resources. Still, these inequities played out horrifyingly as communities already struggling with economic decline cratered under financial losses and declining life expectancy.

Alternatively, long in need of significant reform, the system’s institutions escaped this period relatively unscathed.

Insurance companies saw record profits and stock price gains without making commensurate investments back into the system. Drug manufacturers were able to continue distribution through alternative prescribing and filling.

Hospitals faced compulsory elective service suspension and a precipitous decline in volumes. Because most of the country’s health service reimbursements remain tied to volumes through fee-for-service payments, this compressed utilization had a significant impact on revenues. Though some of these forgone revenues were mitigated through the rapid deployment of telemedicine platforms and gradual demand surges as facilities opened back up, the most significant saving grace for hospitals was extraordinary federal aid through programs like the Provider Relief Fund and the Paycheck Protection Act, pumping billions of dollars into the system to offset losses.

As a result, balance sheets were strengthened, salaries were maintained, and the underlying urgency to shift providers’ economic incentives
went unchanged.

But a stress test would not be sufficient without some application of alternative scenarios that could have changed the outcome. In this case, the nation came alarmingly close to a significant erosion of hospital capacity and an attendant that would have led to a more substantial loss of life. Had unemployment reached a 10% level and had the federal response been less sweeping, hospitals would have faced a wipeout of 85% cash and 45% of general fund assets. This would have led to hospital closures in vulnerable and rural communities.

Notably, the health system’s economic structure is not built to sustain this stress level. A patchwork of misaligned incentives, lack of transparency, byzantine insurance rules, and other deficits prevent the system from responding to exogenous shocks.

To our nation’s credit, the speed at which we developed an effective vaccine and federal funds allowed us to “buy” our way to a faster exit from the pandemic with our health system intact. But if today’s political dysfunction should teach us anything, it’s that counting on the government to save industries is a risky game. Significant structural changes that could catalyze greater dynamism and agility are essential.

I believe stakeholders across the country will be well served to:

1. Focus on institutional resilience, investing more deeply in workforce attachment and well-being

2. Accelerate the pace at which we pay providers for the value of their services instead of keeping them attached to financial rewards linked to volume

3. Embed digital health solutions so deeply within employer and provider institutions that they are indistinguishable from in-person care.

The next public health crisis will always be looming. We would be well served to anticipate its arrival and apply the same urgency in prevention as we did to the cure.

Excerpts from a financial analysis, COVID-19 as a Stress Test for the American Healthcare System, co-sponsored by The Council of Insurance Agents & Brokers, the American Telemedicine Association and the Healthcare Financial Management Association.

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