Covid 19

Cost of COVID-19 cases likely to eclipse relief measures

April 29, 2020 11:39 pm

To prepare for the significant challenges posed by the COVID-19 epidemic, hospitals and health systems must act quickly to develop a well-informed plan of action that considers both the immediate and long-term effects of the crisis.

The Coronavirus Aid, Relief and Economic Security Act, or CARES Act, passed by Congress on March 25, has earmarked $100 billion in relief to hospitals responding to the COVID-19 pandemic. It includes a 20% bump in Medicare payments to hospitals for the treatment of patients admitted with COVID-19 at any time within duration of the designated emergency period for the virus.

Will it be enough? Many would say it’s better than the proposed 15% increase in Medicare payment outlined in the proposed bill.

But the relief may not be enough for hospitals already stretched to their financial limits, according to Steve Lefar, executive director of the data science division of Strata Decision Technology in Chicago.

What are the actual costs of treating COVID-19?

A recent study by Strata looked at actual costs to treat patients with coronavirus based on information gathered from both Italy and China, in addition to data from the U.S. health system.

“We took 32 health systems that had extraordinarily high-quality data, representing about 157 hospitals, 1.2 million discharges and about $48 billion in operating expense,” Lefar said. “The sample ranged from small regional/rural health systems to very large academic medical centers. And the goal was to figure out how these COVID patients would present from a reimbursement perspective.”a

The study also looked at the types of patients seen in Italy and China, who fall into about eight DRGs, Lefar said. “We looked at those DRGs — which include pneumonia, ARDS [acute respiratory distress syndromes], respiratory disorders and patients requiring ventilator support — so we could then model reimbursement and cost.”

The findings were troubling. “If you look at the actual cost, they’re running anywhere from 25% to 50% more than the typical patients for those DRGs,” Lefar said. “These institutions need something more like a 35% increase in payment for those particular DRGs.”

In other words, the amount promised by the CARES Act simply won’t be enough.

At the time Lefar shared his findings, the not-yet-passed relief bill was proposing a 15% increase in Medicare. “At that increase in payment, hospitals will still be losing around $1,800 per case median, but up to as much as $6,000 to $7,000 per case.”

Clearly, based on the research findings, a 20% increase also will be insufficient.

“So it’s a pretty dire situation, particularly when there’s no margin transfer because the electives and the higher-margin outpatient procedures aren’t being done,” Lefar, said. “They’ve got to stay solvent on COVID patients, particularly in places like New York, where they’re being told to be equipped for 150% capacity.

“So hospitals really need a much bigger increase in the DRG payment — that’s the nutshell of this study,” Lefar said. “Looking at the health system economics just for inpatient care, the results could be devastating over a 90-day period even if some areas like oncology and cardiology, which can only wait so long, start to come back. It’s going to be difficult for all but the well-endowed institutions with strong cash positions to manage the cash flow.”

What should hospitals do?

In this environment, Lefar said, hospital leaders should take the following steps.

Self-advocate. “Hospital leaders should push both their senators and their representatives to take steps to ensure these DRGs are to be paid at adequate levels,” Lefar said. “Because the cost shifting is no longer going to work, the high-volume, high-margin procedures are no longer going to be a way to subsidize these medical cases. Hospital leaders just need to explain it in very simple terms to Congress that it is not a viable strategy to kick this can down the road.”

Adhere to updated coding guidelines. Lefar stressed the need for hospitals to make sure they are following the coding guidelines for COVID-19 issued by the Centers for Disease Control and Prevention (CDC) and take steps to ensure they receive the full DRG payments when coding.

“There are cases with complications and cases without complications, and there’s big payment differences between those,” he said. “I also think it’s where the diagnosis is a secondary diagnosis that hospitals are going to miss out of the extra payments. So hospitals should have all hands on deck making sure every bill is very carefully reviewed and submitted very quickly with the proper coding.”

Understand the impact on staffing levels.Certainly, one of the things that we are hearing anecdotally is that nurse staffing ratios are dropping for these patients,” Lefar said. “Hospitals are seeing ratios go from four or five patients to one nurse down to two or three to one. And that’s one reason the costs are going up so high.

“Then there’s the need to have someone watching people putting on their protective equipment,” he said. “Never before has it been more important to get everybody who can, helping in the right way.”

What are other strategies to consider?

Lefar pointed to various other strategies that some hospitals may consider for dealing with the challenges that lay ahead.

“We’re seeing some hospitals working with their local banks, with their state, with their governors to make sure that they had lines of credit to keep cash flowing,” he said. “I have heard of a lot of folks doing that kind of work.”

Another concern he raised was what to do when patients who were on ventilators begin to recover. “We will need rehab and long-term care because they were so damaged,” Lefar said. “Adequate facilities and capabilities need to be prepared so when these patients are ready, they can be moved out to free up capacity and to get them to a lower-cost environment.”

If FEMA or the National Guard are called on to play a role, Lefar suggested, it might also be possible to enlist FEMA or National Guard staff to augment hospital staffs to give them breaks and to help keep costs in check with overtime and staff burnout.

What are the implications for the future?

Lefar also suggested many of the strategies being employed today could end up reshaping healthcare in the future. Organizations like Rush University Medical Center in Chicago are using tents for outside triage to keep people out of the buildings, he said. “The use of drive-throughs to prevent the spread and the huge uptick in telehealth are where the big health systems are piloting and opening it up to try and keep people out of the offices and out of the facilities,” Lefar said. “I think that this is going to be a tipping point as people start to get extremely comfortable interacting virtually with their providers. Some of this is not going to be a temporary change in how people want to interact with their providers. We may never go back to the same level of people going for office visits.”

Senior finance leaders will need to be ready for all the possible scenarios in the aftermath of COVID-19, Lefar suggested. It’s also possible that when the COVID-19 outbreak is over, until people regain confidence, a large portion of the population in vulnerable categories also could put off procedures for a much longer time, in addition to being less willing to seek in-person care, he said.

“I think it’s incumbent on CFOs and their teams to model their long-range plan and say, ‘What if we see a big bump in telehealth? Or what if we see a three- or four-year decline in electives because we haven’t gotten our arms around this, or people are scared?’ That may happen even if the worst of this is over in three months, which it may or may not be.”


a. Editor’s note: After Steve Lefar talked with HFMA, the study’s sample size was increased to 38 health systems, and the findings were adjusted to account for the 20% Medicare boost. The additional data only confirmed the accuracy of the conclusions cited here.


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