Thought Leadership

Hospitals Save Our Lives. How Do We Save Them? Part Four

Brandon Edwards
By Brandon Edwards
posted Apr 16, 2020

Payor Contracting in the Post-COVID-19 World

How can payors help hospitals recover from the financial devastation of the pandemic?

Media coverage today is focused on how hospitals are responding to the COVID-19 pandemic – effectively suspending business plans and throwing every resource at the crisis. This is what hospitals do. It’s why we count on them to a degree we may not be aware of until a crisis happens. It’s why the “blue H” is a symbol of reassurance; why people know they can count on their hospital being there when they need it.

There is less coverage, however, of what commercial health plans are doing to help hospitals survive the financial devastation of COVID-19.

A disaster for hospitals is a windfall for payors

The fact is that while hospitals are under siege by the pandemic, health plans are enjoying a massive financial windfall due to delayed or canceled elective surgeries. Carefully avoiding scrutiny to minimize criticism, the plans are doing the bare minimum to help hospitals survive financial devastation.

To be fair, many health plans have stepped up and offered free COVID-19 testing and even waived patient co-pays and out of pocket costs for COVID-19 treatment. But these efforts for consumers do nothing to help hospitals losing billions of dollars each month. Health plans have traded inexpensive tests and relatively inexpensive medical care for COVID-19 patients for billions in savings from elective surgeries, imaging, and other hospital services put on hold. Over the next few quarters, we should expect to see massive earnings announcements from the Wall Street health plans, never mind the nonprofit Blues who are sitting on nearly $100 billion in excess reserves beyond their statutory requirements.

What has United Healthcare done as the largest health insurance company in America? Here’s one of the few media stories we’re seeing about payors in the crisis: “United Health Group pledges $50 million in COVID-19 support.” (Minneapolis Star Tribune, 3/30). What isn’t being said: United generated $16.4 billion in free cash flow in 2019—in other words, $50 million equals slightly less than one day of United’s free cash flow. Seriously.

Payors must do their part

To put it as politely as possible, we believe health plans must do more to help the hospitals and physicians that make up their provider networks. They have an obligation to help the hospitals and caregivers who are sacrificing everything—even their lives—to save lives during the COVID-19 crisis. It’s that simple.

How hospitals can pressure payors

As they emerge from the COVID-19 crisis, hospitals and health systems will want to consider these strategies to gain more support from health plans:

  1. Look at your contract renewals due between now and spring 2021 and reconsider the rate increases you may need from all payors.
  2. Consider asking for one-time cash payments (not loans) in addition to rate increases, especially if you contract with a nonprofit BlueCross plan.
  3. Start communicating with employers and influencers over the summer to understand how you’re asking health plans to help stabilize your hospital or health system’s financial foundation.
  4. Plan to leverage the brand equity and goodwill you created over the years and boosted during COVID-19 – but do so with care to prevent any impression of being exploitative. You will need lots of support to push payors to do the right thing.

Another way health plans can help

A recent Harvard Business Review article highlights another possible solution.

“Based on data from 2018, a 25 percent drop in revenue would entirely eliminate the current assets for 25 percent of California hospitals. Our hospitals are facing a financial crisis just when we need them the most during this unprecedented health crisis. The Senate bailout appears to allocate $130 billion to hospitals as Medicare’s contribution (and the federal portion of Medicaid), and provide $150 billion to state and local governments, some of which may be channeled to hospitals as the states’ component of Medicaid’s contribution. Private insurers should step in to do their part. And they need to step in right now…On the first day of each month, and until the crisis abates, government and private health insurers should send each provider in their network one-twelfth of the total amount that the insurer paid the hospital or physician in 2019. This is not a loan to keep those hospitals afloat. Nor is it an advance payment for care that will be delayed. This is payment today for the services these hospitals are providing today.”

Interesting thought, for sure. I don’t believe there is a single solution to every hospital’s problem, but this PIP idea is really intriguing and could be super helpful with cash flow in particular. But this solution alone will not solve all problems, particularly if higher rates and more revenue is needed in the near- and intermedia- terms.

You may also want to consider Nate Kaufman’s recent H3 post in LinkedIn in which he shares a series of actions that could help hospitals navigate this difficult period and focus on what’s most important.

In the coming weeks, we will share more strategies for hospitals and health systems who will be looking to their health plan contracts to help fill the gaping financial hole created by COVID-19. As you craft your hospital’s Rapid Recovery strategy, consider the role payor contracting will play in it. This is a huge opportunity to prove long-term value to your organization.

As we move through the COVID-19 crisis, health systems have to start thinking now about rebuilding surgical and procedural volumes. We call it Rapid Recovery, and moving fast and first matters. Join us for a special 1-hour webinar on Tuesday, April 21, at 12:00PM CST.