Acceleration & Impacts of Healthcare Reform

The pandemic has put a lot of pressure on our healthcare ecosystem – from leading the COVID-19 response to radically shifting consumer behaviors and the harsh economic realities caused by the pandemic. We are all wondering how our healthcare ecosystem will emerge from this?

Soon after COVID-19 hit, in early March 2020, the images from news media of crowded ICU beds and abandoned New York City streets created uncertainty and fear for the rest of the United States. We led the COVID-19 response from the frontlines and pivoted quickly to meet the pandemic's realities. Nearly overnight, as the volumes dropped, providers and patients rapidly shifted to leverage the virtual platforms that existed. We saw several temporary changes, e.g., makeshift hospital centers to treat COVID-19 patients, but there will be some lasting ones – healthcare will change forever from this crisis. We will see an acceleration of some of the key reforms that were well underway even before COVID-19 and rapid adoption of some unexpected solutions that emerged from the crisis.

While we are not fortune tellers and cannot predict exactly how the industry will reshape from the crisis, we can certainly look at the trends and infer how the markets will respond to these trends. As we strive to create a better healthcare ecosystem, I will share these six predictions that we think will stand out in a series of blogs in the upcoming weeks. Up first, let’s focus on the Acceleration of Healthcare Reform.

Acceleration of Healthcare Reform

The COVID-19 pandemic has created both a public health crisis and an economic crisis. It has disrupted lives, killed over 490,000 people so far in the U.S., and slowed down the economy. About half of our population receive health coverage through their employer, and because of loss of jobs, a record number of people are filing for unemployment insurance, and millions find themselves without health insurance amid the pandemic. Even those who maintain insurance coverage may find care unaffordable because of out-of-pocket costs that they might have to pay. Both CMS and Private Plans have responded with cost-sharing waivers for COVID-19 related treatments to limit out-of-pocket expenses and some Private Plans have offered temporary premium relief in the form of premium credits for individual and small group market enrollees. However, that is not enough. All these challenges have accelerated the need for reforms to make healthcare more affordable, accessible, and equitable.

In 2020, the U.S. Congress and the administration took swift action to issue over 200 waivers and modifications to respond to the public health emergency (figure 1). Most of these policy changes are temporary, but we expect some of them to become permanent (e.g., expanded reimbursement for telehealth services). Also, we believe the new Biden administration will focus on its proposal of expanding coverage, continue CMS’ value-based care/payment policies, and work on lowering drug prices.

Source: Commonwealth Fund Aug 2020 and KFF Medicaid Waiver Tracker

What can we expect going forward from a reform perspective?

Value-based payments are under a brighter spotlight.

Under value-based payment, providers, through a pre-arranged risk-sharing contract with a private payer (e.g., a Blue Cross plan) or a government payer (e.g., CMS), receive a fixed amount of payment prospectively for each patient covered by the contract. Providers are paid essentially to keep patients healthy or keep them from getting sicker – thus delinking payments from volume, and at least in theory driving better outcomes. On the other hand, fee for service arrangements pay providers for each service provided to the patient, in some sense regardless of the outcome.

The pandemic exposed the FFS model's weakness – its total dependence on volume – as the number of visits to healthcare facilities of all kinds dropped catastrophically, severely cutting payments. The movement from FFS to VBP was already in motion before to the pandemic, but now it is receiving renewed attention from providers and the government. One can expect further reforms and incentives from the government for providers and payers to come together under VBP or other risk-sharing arrangements.

Financial stress caused by the pandemic will accelerate the shift from fee-for-service (FFS) to value-based payments (VBP) as we move past the crisis. As providers who are hit hard by the revenue decline focus on volume in the short term to make it through the crisis, we expect in middle to long term an acceleration of movement towards value-based payment arrangements to have a steady income.

At the start of the pandemic, policy changes and “1135” waivers from CMS included: (1) improved provider payments for telehealth, (2) allowance for providers to serve out-of-state patients, (3) reduced or waived cost-sharing for patients, and (4) permission for federally qualified health centers or rural health clinics to offer telehealth services.

Stay-at-home orders, combined with changes to policies, sharply increased the demand for telehealth services almost overnight (those visits increased to over 43.5% for Medicare Primary care in April 2020, versus less than 0.1% in February 2020).^(1.1) While those visits are slowly declining from their peak, we expect some waivers to become permanent and telehealth to become a viable alternative to in-person visits. Several established and new companies, like Teladoc, MD Live, and Amwell, have become a competitive threat to the local primary care organizations. We expect continuing innovation in the technology and business models within this space.

Equity in healthcare is as important as equity in society.

It is disheartening to see that people of color are experiencing a disproportionate burden of COVID-19 cases and deaths. The pandemic saw roughly 2.8 times more deaths, 3.7 times more hospitalizations, and 1.4 times more cases among African Americans than White Americans.^(1.2) Other ethnic minority groups are also disproportionately impacted by COVID-19. The data suggests that people of color face increased healthcare barriers and that the pandemic has taken a larger economic toll on them. These disparities in COVID-19 are not new and reflect longstanding underlying social and economic inequities that stem from structural and systemic barriers, including racism and discrimination. However, their prevalence in healthcare is troublesome. In 2021 and beyond, we expect the government to work with employers, payers, and providers to find ways to minimize the gaps, partly by improving the social determinants of health and partly through reforms and incentives.

1.1 HHS Report, Jul 2020 highlighting dramatic trends in Medicare Telehealth Utilization amid COVID-19

1.2 CDC: https://www.cdc.gov/coronavirus/2019-ncov/covid-data/investigations-discovery/hospitalization-death- by-race-ethnicity.html