COVID-19 created an unprecedented financial crisis for American hospitals. The Coronavirus Aid, Relief and Economic Security (CARES) Act provides $100 billion in grants to help with the immediate funding challenge and another relief bill is in the works. That legislation should go beyond writing more checks. Promoting more efficient health care and expanding health insurance to the uninsured are better strategies for the long run.
Hospitals have acted in the best interests of public health, and it has cost them. Non-urgent surgeries and other elective services that make up much of their income have been cancelled. Patients are staying away from hospitals to avoid possible infection. At the same time, hospitals have sharply increased spending for personal protective equipment, additional beds and other equipment needed to treat a surge of COVID-19 patients. As a result of this cash drain, hospitals across the country have taken drastic action to reduce cost, including laying off employees and cutting pay.
The CARES Act Provider Relief Fund offers grants to hospitals and other health care providers to help with higher costs and lost revenue from the pandemic. Payments will be distributed in two phases, making it possible to start the flow of funds as quickly as possible while allowing time to develop what could be a more finely tuned approach for the remaining money.
The first $30 billion is distributed to providers based on the amount of payments they received from fee-for-service Medicare in 2019. Initial payment amounts are not tied to the financial impact of COVID-19 on providers. Hospitals that have an above-average proportion of admissions from commercial payers or Medicare Advantage are disadvantaged by this formula even though they may have sustained above-average financial losses. Hospitals that admit few COVID-19 patients could receive larger grants than those bearing the brunt of the virus solely because they received higher Medicare fee-for-service payments last year.
According to the Department of Health and Human Services (HHS), the remaining $70 billion would focus on COVID-19 hot spots, uninsured COVID-19 patients, rural providers and other providers with lower shares of Medicare payments than average. This is an amalgam of political (albeit worthy) interests rather than a practical approach to distributing grant funds.
Identifying which hospitals deserve larger grants invites debate over which constituent is most worthy. How much should a financially troubled rural hospital that is unlikely to treat many COVID-19 patients receive? Should it be larger or smaller than the grant given to a small urban hospital that will see more infected patients — but is not the only option available in that area? Although formulas will be invented to implement this plan, funding decisions inevitably will be subjective.
Paying the cost of COVID-related services for uninsured patients is less subject to debate. However, piecemeal funding for uninsured patients infected with the coronavirus means they will remain outside of the organized health system until they are sick enough to be admitted to a hospital. That modestly addresses a revenue issue for hospitals and an affordability issue for the uninsured but fails to promote cost-effective care for this vulnerable population.
A better strategy is to combine short-term financial assistance to hospitals, more flexible regulation to promote more efficient health care, and expanded enrollment in health insurance.
HHS has begun to lower regulatory barriers by expanding telehealth services for Medicare beneficiaries, allowing nurse practitioners and other clinicians to perform work to the fullest extent of their licenses, and allowing hospitals and health care systems to expand treatment capacity in community-based settings. Such changes are temporary, but they open the door to health care that takes full advantage of new technologies that can improve care and reduce cost.
More needs to be done to increase insurance enrollment during the COVID-19 crisis. Expanding access to coverage through the insurance exchanges, employer plans and Medicaid would allow new enrollees to take advantage of subsidies that are already available to them. Since people with insurance are more likely to seek medical attention when needed, rather than delaying until their conditions become acute, such a policy is in the public interest.
The CARES Act grant program is an important stopgap measure to temporarily slow the financial bleeding caused by COVID-19. As debate begins on a new relief bill, Congress should recognize that more grant money will not change the fundamental problems laid bare by the current crisis. A more balanced approach combining regulatory changes and expanded access to insurance is a smarter investment in America’s health care future.
Joseph Antos is the Wilson Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute. Ge Bai is an associate professor of accounting at Johns Hopkins Carey Business School and associate professor of health policy and management at Johns Hopkins Bloomberg School of Public Health.