Looking Forward

Diversified Hospitals Thrive, Potential New Partners Arrives

Considering the magnitude and pace of change in 2020, hospital executives are unsurprisingly reviewing long-term strategies. Some, such as Chief Financial Officer Chris Pass at John Muir Health (JMH), are sticking to their blueprint, which includes a new partnership in 2019 with UnitedHealth Group’s (UHG) Optum: a relationship including transfer of some employees from JMH to Optum, as well as joint efforts to address JMH’s Community Health Needs Assessment.^1,2,3 The latter endeavor dovetails with the push by UHG and other commercial insurers to address social determinants of health, long-standing factors attracting the spotlight during the COVID-19 pandemic.⁴ Although JMH still remains an independent system, several integrated delivery networks (IDNs) featuring a provider-sponsored health plan weathered the pandemic’s financial storm much better than did those without such a plan, especially in light of the enormous drop in medical utilization (see 2020 Commercial Payer Digest^™). For example, Highmark Health posted a 2020 operating gain of $490 million, more than double the prior year tally.⁵ Similar financials were posted by UPMC, whose combination of provider and insurer services led to
$1 billion in net income, eclipsing $420 million in 2019.⁶ The robust results of diversified IDNs are sure to catch the attention of peers.

Rural hospitals appear particularly susceptible to the economic strains of the pandemic. According to data compiled by the Cecil G. Sheps Center for Health Services Research, 2020 was another record year for the number of rural hospital closures, rising to 20 from 17 in 2019.⁷ Given the worsening shortage of health care providers in impacted communities, funding of telehealth and broadband infrastructure (see Telehealth section) will remain a top priority of various federal agencies. In fact, the Department of Agriculture (USDA) and the Federal Communications Commission (FCC) recently signed a memorandum of understanding with the Department of Health and Human Services (HHS) to address this very issue.⁸ Such investments, however, along with relaxed regulations around telehealth, may also benefit marketplace disrupters—many in the form of technology companies of all sizes—offering the potential for both competition and partnership. Recently, Amazon helped launch the Moving Health Home coalition, whose lobbying efforts include pushing Congress to make permanent HHS’s temporary hospital-at-home waivers (see page 4).^9,10 Whether to embrace or resist the helping hand of the large, diversified partners will likely be a focal point of many hospital board discussions in 2021.

Pandemic Taxes Current Generation of Physicians and Inspires Next

In June 2020, the nation’s top infectious disease expert and chief medical advisor to the president, Dr. Anthony Fauci, called COVID-19 his worst nightmare, a sentiment that many of his physician colleagues likely echo.¹¹ After all, physicians confronted the full force of the pandemic, dealing with risks not only to their physical and mental well-being, but also to their financial viability (see page 13). Although heroic efforts over the past year exacted a toll on the current generation of physicians, the experience also served to inspire the next generation through what has become known as the “Fauci Effect.”¹² Encouragingly, medical school applications were up 18% in 2020. This potential influx of medical students comes at an opportune time, as federal agencies such as the Health Resources and Services Administration grapple with an ever-increasing physician shortage that predated the current pandemic. Innovative tuition models have also emerged in recent years, with schools such as the Kaiser Permanente School of Medicine and the NYU School of Medicine offering free tuition to students in the hope of influencing those future physicians to select family medicine, general internal medicine, or less popular, lower paid specialities such as pediatrics.^13,14

Despite the arrival of safe and effective vaccines and the commensurate boost to the collective psyche of physicians nationwide, the pandemic’s scars will undoubtedly remain as case counts and hospitalizations drift lower. In particular, the severe financial pressure exerted on these critical frontline guardians, who for years have relied on fee-for-service reimbursement models, will likely spark further change. In some cases, as highlighted by Optum’s recent acquisition of Atrius Health, non-profit physician groups may join with for-profit entities, such as the large national insurers who benefited financially from the record drop in medical utilization rates early in the pandemic (see again 2020 Commercial Payer Digest^™).¹⁵ For physicians wishing to remain independent, recent challenges may catalyze a rapid shift to capitated, value-based contract arrangements, which can continue to generate income even under the harshest of prolonged economic stresses.¹⁶ Such contracts might yet align better the disparate interests within the vast U.S. health care system.

ACOs Serve as Testing Platform for Delivery of Care via Telehealth

The COVID-19 pandemic—in addition to causing tragic loss of life and livelihood—disrupted efforts by the Centers for Medicare & Medicaid Services (CMS) to further transition to value-based care. The disproportionate impact of the virus on older Americans meant that Medicare Shared Savings Program (MSSP) and Next Generation accountable care organizations (ACOs) bore a heavy burden in caring for the sick, many of whom required costly acute care with uncertain outcomes. The providers in these organizations, meanwhile, faced reduced fee-for-service revenues as non-COVID patients deferred care. Such challenges were likely more daunting for the ACOs serving rural areas, where patients are more prone to have risk factors associated with severe illness (e.g., advanced age, preexisting chronic conditions, tobacco use, obesity, and disability).¹⁷

CMS was already leveraging the ACO program to help address health care disparities known to exist in rural versus urban delivery of care and further highlighted by the pandemic. The ACO Investment Model (AIM), for example, used subsidized payments to spur ACO development in rural and underserved areas. This program successfully sparked the formation of 41 new ACOs in 2016. A study of AIM ACOs found that they collectively saved Medicare $382 million and thus demonstrated that geographically separated groups could thrive. Such success points to the ability of value-based models to serve populations lacking geographic proximity—a finding especially important in light of telehealth’s newfound prominence.¹⁸

In fact, telehealth sits at the center of the Community Health Access and Rural Transformation (CHART) Model. This model, which features ACO and community tracks, builds on the AIM initiative. For the ACO transformation track, CMS will select up to 20 ACOs to receive a minimum of $200,000 each (plus $36 per beneficiary) in up-front investment to participate in a five-year, risk-sharing MSSP. Originally set to launch in the spring of 2021, CMS postponed rollout of this track by a year.¹⁹ Even if such formal incentive programs are delayed, ACOs of all types will undoubtedly be encouraged to invest in technology that facilitates the delivery of quality care in a nation profoundly impacted by the pandemic.

Pandemic Sparks Reforms as Balance Shifts in Long-Term Care Sector

Global data reflect the devastating consequences of COVID-19 across the long-term care (LTC) continuum of settings, including not only nursing homes, but also assisted living and other LTC facilities. According to the International Long Term Care Policy Network, approximately 41% of all COVID-19 deaths across 22 countries were such “care home” residents.^20,21 State and federal officials in the U.S. have already begun what is certain to be a raft of regulatory changes, including stricter enforcing of minimum staffing levels in Illinois and lowering of resident-to-nursing assistant ratios in New Jersey.²² At the federal level, CMS implemented a new consumer alert feature in late 2019, aimed at allowing consumers to identify facilities with instances of noncompliance related to abuse.²³ Around the same time, however, the Trump administration introduced measures to chip away at Obama-era nursing home rules, often described by detractors as too tough. Unfortunately, one of the proposed reforms concerned infection control, an issue that would reach critical importance throughout the COVID-19 crisis.^22,24

The sharp decline in COVID-19 cases and deaths in nursing facilities since the deployment of vaccines (see page 31) has brought much needed relief to the LTC sector. In March 2021, CMS announced revised visitation recommendations for nursing homes, going so far as to allow indoor visitation at all times and for all residents—regardless of vaccination status of the resident or visitor—except under limited circumstances.²⁵ Having endured the most challenging year of their existence, many senior care facilities responded cautiously and have lifted restrictions more gradually, to the frustration of those longing to spend time with their loved ones.²⁶

Administrators of LTC facilities are now balancing the wishes of those residents and their families against the harsh lessons from the past year. Moreover, as the burden of the pandemic moves away from congregate care facilities for the elderly, Congress is now scrutinizing the handling of the pandemic and working on policy changes likely to fundamentally alter the LTC framework.²⁷ In parallel, the Biden administration announced a $400 billion package to support home- and community-based services (HCBS), in line with the Money Follows the Person demonstration project. The policy shift aligns with campaign promises: higher wages for LTC workers and stricter regulations for nursing homes, especially on infection control.²⁸ As the LTC industry moves past the trauma of the pandemic, facility directors should expect continued economic pressure as focus switches to policy reform, and the home grows as a setting for delivery of long-term care.