Hospitals Need Cash. Health Insurers Have It.

Hospitals Need Cash. Health Insurers Have It.

by Sean Nicholson and David A. Asch - March 25, 2020

U.S. hospitals are battling Covid-19 on many fronts: Scrambling to create new intensive care unit beds, trying to secure scarce medical equipment to protect their patients and their workforces, training staff on novel treatment protocols, and hiring more nurses. In order to divert resources to the patients in the greatest need - and to protect the safety of the patients who can wait - hospitals are also postponing non-emergency care, cancelling elective procedures and, in general, halting the very activities that used to keep them in business.

Beaumont Health CEO John T. Fox, for example, estimates that by canceling 80% of their surgery and imaging volume, their revenue will fall by $1 billion to $2 billion this year (20% to 40% of their annual total) as they shift from high-revenue surgical and related procedures to caring for increasing numbers of medical inpatients for whom reimbursement is lower. Peter Banko, president and CEO of Centura Health, likewise sees up to $1.5 billion of the system’s $4 billion revenue base put at risk by the cancellation of elective cases. A 2011 study highlighted the financial importance of surgical patients to hospitals: while only 29% of U.S. hospitalizations involved surgery, these cases accounted for 48% of hospital costs and, therefore, potentially an even greater percent of revenues. Even if hospitals decide to continue with revenue-generating elective surgeries, they may not be allowed to: six states and two cities have placed moratoriums on elective surgeries, and more are likely to follow.

Without any action, hospitals will burn through their cash. Price gouging of 200% for common products such as masks and gloves is now the norm. Financially weaker health systems may soon be unable to meet payroll or pay for their essential supplies. Based on data from 2018, a 25% drop in revenue would entirely eliminate the current assets (cash or assets that could be turned into cash within one year) for 25% 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.

Health insurers manage our premium dollars. Private insurers collect premiums from employers, employees, and self-insured workers, and they use that money to pay care providers when they deliver services to us. Medicare and Medicaid likewise collect taxes which they use to pay providers for services delivered to the elderly, disabled, and lower-income individuals. Insurers are the stewards of our money. It isn’t their money.

So the question is: How would Americans like health insurers to use our health care premium dollars? Surely the answer is to direct that money to the front lines to ameliorate this health crisis.

Health insurers can help save lives by announcing immediately that they will transfer our premium dollars and taxes to providers on the front lines. This will allow providers to focus on saving lives rather than worrying about making payroll or paying for supplies.

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.

Why? Because we use health insurance as a way to pay hospitals and doctors for doing what we need them to do.  And right now, they are doing just that. They are not doing what they usually do - delivering the routine or emergency care that creates billing codes and insurance reimbursement - but they are doing something just as important and just as connected to the fundamental purpose of health insurance.

Health insurers have already budgeted this money and have already collected it. We are asking them to pay it up front so it can be put to good use now. Of course, insurers may face their own financial problems, especially as the pandemic strains state governments, if employers terminate their policies, or if laid off employees forego their portion of the premium. Payments may need to be adjusted to reflect these possibilities. But we should recognize that in contrast to hospitals, health insurers run a largely variable-cost business. If they lose enrollees and premiums, their costs will also fall by 80 to 85 cents on the dollar - the amount of the premium that is directed to providers of care. They are more resilient.

Alongside the many heartwarming stories of people acting selflessly to help their fellow citizens are disheartening stories of people or companies trying to profit excessively on the health crisis. Health insurers are not in this latter group, but they do potentially face a windfall because the high clinical costs of caring for infected patients is almost certainly more than offset by the reduced costs from other care foregone. Those extra funds shouldn’t be theirs; they were there for our health care, and our health care system needs them now.

Editor’s Note: This article was updated on March 25, 2020 to include information on the Senate bailout.

Sean Nicholson, PhD, is a professor in the Department of Policy Analysis and Management at Cornell University, the Director of the Sloan Program in Health Administration, and a Research Associate at the National Bureau of Economic Research.

David A. Asch, MD, MBA is the John Morgan Professor at the Perelman School of Medicine and the Wharton School and Director of the Center for Health Care Innovation at the University of Pennsylvania.