CMS releases final Quality Payment Program rule

COVID-19 Update

The second quarter of 2020 saw a continued increase in COVID-19 cases, with over 17 million cases of coronavirus worldwide and over 4.5 million in the US alone as of July 30, 2020 (up from 5.6 million worldwide and 1.7 million in the us as of May 27, 2020). Beyond the implications of a recessionary economy, uncertainty remains as to how the business environment for healthcare providers will change once lockdowns begin to lift. Below are some perspectives on the healthcare provider industry, the struggle to replace revenue, and why virtual care might be the future of the industry:

  • Continued financial pressures for providers: While healthcare volumes have shown considerable sequential improvement throughout May and June, volumes remain well below pre-COVID levels. This increase could be temporary, however, given that COVID cases, hospitalizations, and deaths accelerated in several key states in July. For example, as a response to a rising case rate, Texas suspended elective surgeries in eight counties, including some of the state’s most populous. According to a June 30, 2020 report from the American Hospital Association, US hospitals could lose at least $323.1 billion in 2020. Top line pressures driven by the lack of elective surgeries and loss of overall patient volumes could coincide with balance sheet pressures in the coming months, as hospitals will need to repay the government advances on Medicare reimbursement starting in August and September. This advance represented 20 – 30 days cash on average.
  • Resurgence of COVID may stall jobs rebound: After losing over 1.4 million jobs in April, the US healthcare sector added 315,600 jobs in May and 358,000 jobs in June. While most of the healthcare sector saw gains in May and June, including hospitals, which added jobs for the first time since March, losses continued for nursing care facilities. While having two months of healthcare industry job growth is encouraging, experts warn that a resurgence of COVID cases, as is being seen in states like Texas, Florida, and California, could derail the recovery.
  • Reimbursement and policy changes for virtual care: The pandemic has accelerated the widespread adoption of virtual care, and on March 6, the Trump administration made sweeping changes to how the government covers and pays for the services. Medicare now covers telehealth services for multiple provider types, including primary care check-ins and mental health counseling and allows patients to receive treatment from their homes. Previously, Medicare only covered a limited number of services and restricted where a patient could receive them, typically preventing at home treatment. Additionally, Medicare will pay the same reimbursement rate for telehealth treatment as in-person visits. These changes are in effect through the pandemic, although experts believe that they may lead to more permanent policy changes after the outbreak. In addition to higher Medicare reimbursement, consumers are seeing more private-pay reimbursement for virtual care. In the 12 months ended July 30, 2020, 41% of US broadband households used a telehealth service (nearly tripling year-over-year), with 83% of them reporting that their visit was paid either completely or partially by insurance.
  • Accelerated demand for virtual care: In 2019, the global telehealth market size was valued at $61.4 billion and is projected to reach $559.5 billion by 2027, exhibiting a CAGR of 25.2%. The adoption rate of telehealth is increasing dramatically, particularly in the fields of radiology, cardiology, and behavioral health, helping to partially offset provider losses on lower in-person patient volumes. As the US healthcare industry continues to evolve away from the fee-for-service model, telehealth adoption is projected to continue to increase. Under the fee-for-service (“FFS”) model, providers are learning the hard truth that their risk is bottomless – less patient days and less elective surgeries can cripple the financial health of hospitals. However, under a capitated payment model, where payments are outcome-based, being able to leverage telehealth to increase provider-patient touchpoints and check-ins can help mitigate expensive last minute ER visits.
  • Impacts on the M&A landscape: M&A activity is currently seeing a slowdown, as both strategic and private equity acquirers are putting the brakes on in-process deals for the near-term. With this slowdown expected to be in effect for the coming months, even as states begin to slowly open up, we are likely to see many organizations with strong balance sheets take advantage of inorganic growth opportunities at depressed multiples. One space that will likely continue to see acquisitive activity is provider organizations, as cash reserves deplete and scale economies become even more crucial for survival of many hospitals and physician groups.

Sources: Fortune Business Insights, S&P Global Market Intelligence, Moody’s, Parks Associates, CNBC, American Hospital Association

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Benefit plan action required by Aug. 31, 2020