Beleaguered and exhausted, the health sector marches into a third year of the pandemic.
For hospitals, it will mean continued pressure on profit margins as expenses climb due to a host of issues, including more expensive labor as clinical staff is in high demand. Ultimately, price hikes are likely as hospitals try to pass some of these higher costs on.
For payers, it likely means continued shifts in payer mix. Medicaid and Medicare coverage has swelled as policymakers have incentivized coverage as the nation recovers from the worst effects wrought by the pandemic. But as the emergency policies wane, it will likely cause disruption and payer mix fluctuations. And as people continue to put off care, that poses a risk to payers with a member base that is not only sicker but also has more advanced and complex illness.
Meanwhile, shifts in volume are likely to ebb and flow as COVID-19 cases rise and fall. A trend evident throughout much of the pandemic: Non-COVID volumes fall as hospitalizations balloon for COVID-19. It results in a tailwind for insurers while creating a headwind for providers. The amount of care people postpone more than outweighs what insurers spend on those hospitalized with COVID-19.
One of the takeaways from the pandemic is that when one part of the sector benefits, such as insurers, the inverse is true for providers.
Fluctuating payer mix
The COVID-19 pandemic served as a major stress test for the safety-net coverage that has been knitted together over the past decade thanks to the Affordable Care Act.
As the nation recorded historic job losses in the early parts of the pandemic, it did not result in a spike in the number of uninsured people as it had in previous recessions. In fact, the uninsured rate has held steady since 2019 despite the enormous upheaval across numerous industries.
Still, there have been fluctuations in enrollment trends. For example, Medicaid rolls have grown while employer-sponsored plans have recorded modest declines. Enrollment in Medicaid and the Children's Health Insurance Program hit 83.2 million members in June 2021, up nearly 18% from February 2020, before the worst of the pandemic's effects, according to government data.
Pandemic-era legislation also helped protect against coverage losses. States were barred from removing Medicaid enrollees from coverage during the duration of the public health emergency. The PHE is expected to end sometime this year and insurers are bracing for states to restart determining who is eligible for Medicaid coverage.
The redeterminations could result in another fluctuation to coverage in 2022, exposing Medicaid managed care organizations such as Centene and Molina to a decline in enrollment and a loss of revenue after recording membership gains in 2021. It's unclear how many Medicaid members will be booted from the program due to ineligibility.
On the flip side, some may be able to catch those customers through an ACA exchange plan. Many Medicaid members no longer eligible are likely to move to the exchanges "testing the links between the two programs," Massey Whorley, associate principal at Avalere, said in a recent presentation.
Labor constraints, rising expenses, margin pressure
Hospitals are staring down a difficult year of continued wage pressure as nurses are in high demand, desperately needed to respond to yet another COVID-19 surge. At the same time, traveling agencies are driving up wages as they lure nurses away from their traditional posts by offering significantly higher pay.
Meanwhile, morale among front-line staff is low due to high levels of burnout from an unrelenting workload during the pandemic, which now enters its third year. These dynamics have contributed to healthcare workers quitting their jobs.
"It's management's, No. 1, No. 2 and No. 3 concern at the moment," Kevin Holloran, senior director at Fitch Ratings overseeing nonprofit healthcare, said of the labor concerns, emphasizing the seriousness for providers.
For some hospitals, salaries, wages and benefits can account for anywhere between 45% to 50% of revenues — a massive cost item, Eric Axon, senior healthcare analyst for CreditSights, said. For hospitals, wage inflation "is going to be a persistent theme for the years ahead," Axon said in a recent webinar.
At the same time, hospitals will need to weather a host of other cost increases, including supply costs while inflation is climbing.
All together, this will likely squeeze hospitals' margins, experts have said, and will likely lead to price increases in the future as hospitals negotiate new contracts with payers.
As providers will likely try to pass these cost increases on, it will be more difficult for those with a payer mix that skews heavily toward government payers.
However, a considerable amount of cash on hand will help nonprofits offset margin pressure. Nonprofits' balance sheets "are currently showing unrestricted liquidity levels at virtually all-time highs … and that's going to give [them] a lot of cushion to absorb some of these losses," Holloran said.
Billions in provider relief funds helped prop up providers financially as volumes plummeted during the onset of the pandemic. But whether regulators plan to send the remaining funds to providers is still unclear.
"Will there be additional distributions? That's a question mark," Suzie Desai, director of nonprofit healthcare at S&P Global Ratings, said in a recent presentation.
Volume trends, ability to navigate through surges
Since its arrival, the pandemic has disrupted patient volumes, and much of that patient traffic is still below pre-pandemic levels.
This initially led to an explosion in telehealth visits, alleviating some concerns around the ability to readily access care during shutdowns and surges.
But insights into continued lagging volumes for certain services are raising some alarms. Putting off care can result in worse health outcomes for patients. Some oncology trends are raising a red flag.
Concerning breast cancer treatment, "at every step along the care journey, we're still not anywhere near pre-pandemic rates," said Lance Grady, leader of Avalere's market access practice, during a recent online presentation.
For metastatic breast cancer, "we're seeing screening biopsy, mastectomy and oncolytic treatment all down, and down substantially as most recently as November of 2021," Grady said, comparing a five-month period ending November 2021 to the same time period in 2019.
Mammography visits are down as much as 35% over that period, along with a 44% decrease in biopsy claims, according to claims data analyzed by Avalere.
Avalere's research takeaway — patients are sicker — has been echoed by hospitals and insurers who have all noted a higher acuity mix of patients.
These trends are poised to have a widespread effect on the industry, and pose a headwind for insurers, likely requiring them to spend more on patient care.
Meanwhile, providers will have to care for these patients while navigating through COVID-19 surges of their own.
As lawmakers seem less likely to impose shutdowns and force a pause on electives, providers will have to continue balancing the need to respond to COVID-19 upticks while also treating non-COVID-19 patients.
Surges can dent the ability to make money for providers as they crowd out other lucrative procedures. COVID-19 patients tend to use more resources, particularly during a surge, limiting both physical space and staffing resources.
Surprise billing ban compliance
Many surprise bills are no longer legal under major consumer protection legislation that went into effect at the start of the year.
Providers will have to come into compliance with the federal law, ensuring patients do not receive these types of sky-high bills that can leave them stuck between provider and insurer payment disputes.
Patients are now protected from surprise bills that originate from air ambulances, emergency services and non-emergency services at an in-network facility.
However, not all surprise bills are outlawed. Ground ambulances are not included and neither are urgent cares. Patients could also potentially receive a surprise bill after a lab is ordered by a primary care doctor.
Provider groups are challenging a segment of the law in federal court. The American Hospital Association and American Medical Association argue HHS' implementation of the law directly conflicts with what Congress had intended by "placing a heavy thumb on the scale" that favors insurers in the dispute resolution process.
There are three other similar suits that largely argue the same issue.