How the COVID-19 Stimulus Packages Compensate Health Care Providers

Mile Square Health Center's Roosevelt Ave. location at night.

Note:  this analysis was originally published by the Upjohn Institute.

The health care industry accounts for about 11 percent of U.S. jobs. Tasked with the responsibility for treating patients with COVID-19, the health care sector and its workers face unique challenges in responding to the disease, and prior stimulus bills have included features that specifically address the health care sector.

As reimbursement rates for health care services are typically negotiated between insurers and providers (or set by the government) well in advance, a basic logistical issue was how payment for COVID-19 diagnosis and treatment was going to work—payment rates, rules, and norms clearly had not been established prior to the start of the pandemic. Both the Families First Coronavirus Response Act (which took effect on March 18) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act (which took effect on March 27) address coverage and reimbursement of care for COVID-19 treatment.

In particular, the Families First Coronavirus Response Act ensures that patients will not have out-of-pocket costs for medical services related to COVID-19 diagnostic testing. Insurers are required to fully reimburse providers, while funds were allocated to pay providers for diagnostic testing for the uninsured. The CARES Act outlines rules for reimbursement and pricing transparency. Health care providers must publicly list the cash price of COVID-19 diagnostic testing on their websites, and private insurers will pay either the negotiated rate (if lower) or the published cash price. Medicare reimbursement rates have been set at $51.31 for commercial tests. While the new rules mean COVID-19 patients will not have out-of-pocket costs for COVID-19 testing, the same does not necessarily apply to COVID-19 treatment: federal policy does not require that insurers provide full funding for COVID-19-related care.

Hospitals are set to lose money from the COVID-19 crisis, as it has significantly curtailed the elective procedures that are major sources of hospital revenue. The CARES Act tried to address this revenue loss by allocating funds to providers losing money. Of the act’s roughly $140 billion allocated for health care, over $100 billion was dedicated directly to health care providers through an emergency fund of the Secretary of Health and Human Services (HHS). The CARES Act’s guidelines state that the funds should compensate for “health care related expenses or lost revenues that are attributable to coronavirus,” which leaves HHS with broad discretion in their allocation.

On April 10, HHS announced that $30 billion would be immediately routed directly to providers in proportion to their shares of total 2019 Medicare revenue (a $484 billion pie). HHS stated that it chose this allocation method so that funds could be distributed quickly. However, since the approach does not account for COVID-19 treatment or severity, it proved controversial and resulted in some hospitals with relatively light COVID-19 caseloads receiving more funds than hospitals with severe caseloads. The allocation also does not consider the losses in provider revenues, and hospitals and other health care centers that do not treat Medicare patients may not receive any funds, despite having experienced large losses to their revenues by ceasing elective care.

On April 22, HHS announced that it would distribute an additional $20 billion directly to providers based on past revenues. To address the criticism of the first allocation method, HHS is allocating the additional money so that a provider’s share of the total $50 billion equals its share of 2018 net patient revenue. The same announcement also stated that $10 billion would go to hospitals in areas that have treated high shares of COVID-19 cases, with another $10 billion for rural health clinics and hospitals, and $400 million for the Indian Health Service. Additionally, HHS announced that the fund would reimburse at Medicare rates COVID-19-related treatment for uninsured patients.

On April 24, 2020, President Trump signed the Paycheck Protection Program and Health Care Enhancement Act, which allocates an additional $75 billion for HHS to distribute to health care providers. The act also includes an additional $25 billion to expand COVID-19 testing. These funds will supplement provisions in the CARES Act that add personal protective equipment and other medical supplies to the Strategic National Stockpile, provide $145 million in grants to promote telehealth, temporarily increase Medicare payments to providers, and reauthorize funding for various public health programs.

About the author

Marcus Dillender, PhD, is an assistant professor of health policy and administration at the University of Illinois at Chicago (UIC) School of Public Health. His research lies at the intersection of labor economics, health economics and public economics.

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