The payer-provider disconnect

Call it the big disconnect. Thousands of healthcare provider groups face financial ruin. Tens of millions of Americans are losing insurance coverage. Yet private health insurers are doing just fine, thank you.

So far, Congress has responded only to the provider crisis. Social distancing has cut hospital revenue by an estimated 30% to 40%. Local physician practices, with primary care hardest hit, have seen declines of up to 90%.

To avoid wholesale collapse, the government earmarked $175 billion for providers in its first three bailout bills. A fourth measure in the Democratic-controlled House puts another $100 billion on the table.

Unfortunately, the bills contain almost no rules for the money’s use. There are widespread reports that large systems have marched off with most of the funds while small physician practices and rural providers are tottering on the brink of permanent closure.

The Trump administration undermined oversight when it cashiered HHS’ inspector general, Christi Grimm. She had worked at the OIG since 1999 yet was let go shortly after she reported hospitals’ mad scramble for personal protective equipment early in the crisis.

Meanwhile, private health insurers’ first-quarter results showed few consequences from the first two weeks of the lockdown. Their leaders left earnings estimates for the full year right where they were last December before the crisis hit.

In his earnings call, UnitedHealth Group CEO David Wichmann admitted the situation “feels awkward.” The nation’s largest insurer responded by fast-forwarding $2 billion in provider payments; eliminating cost-sharing for COVID-19 treatments; and removing prior-authorization rules.

Those minor measures won’t change the underlying dynamic. “It very well could be that under the circumstances, deferrals of services outweigh COVID-19 costs,” he said.

Could employers that purchase private insurance see much-needed rate relief in 2020, similar to what auto insurers are doing for customers? “It remains to be seen,” he said. Normally, when medical losses fall below the Affordable Care Act’s rules, insurer “rebates” don’t begin showing up until the next calendar year. But they use a three-year average, which postpones most of the rebates from this year’s spending collapse until 2023.

It’s nearly impossible for actuaries to estimate how much of the lost healthcare spending will reappear in the second half of the year as businesses gradually reopen. Some, certainly. But with 30% of healthcare considered waste, and tens of millions of laid-off Americans returning to work slowly, most of that potential revenue is probably gone forever.

If policymakers stay true to form, the post-crisis delivery and insurance systems will emerge largely unscathed from the current crisis. A huge opportunity for improving the nation’s healthcare system will have been lost.

As things stand now, the government is doing everything in its power to reassure providers and payers that not much will change. There’s a much-needed expansion of payment for telehealth services. But value-based payment approaches that encourage hospitals and physicians to take on more risk have been put on hold.

If the current crisis teaches us anything, it’s that healthcare providers need far greater flexibility to respond to emergencies like the current one. What is a “bailout” but a guaranteed budget? Isn’t this a logical direction for payment reform to take post-COVID-19?

And as for an insurance system that leaves private insurers with no responsibility for those suddenly uninsured, it’s way past time for designing a seamless system where everyone is covered, and people never fall through the cracks. This country needs mechanisms for people to switch automatically between private plans and public programs so no one ever gets left out.

Warren Buffett, in talking about recessions, likes to say, “Only when the tide goes out do you discover who’s been swimming naked.” Healthcare’s tide is out. Everyone is naked.