Funding for Health Care Providers During the Pandemic: An Update
Starting early in the coronavirus pandemic, Congress, states and the Administration adopted a number of policies to ease financial pressure on hospitals and other health care providers. The infusion of funds was intended to help alleviate the fiscal impact of revenue loss due to patients delaying non-urgent care, coupled with new costs associated with COVID-19. This brief describes the main sources of federal funds for health care providers and how those funds have been allocated.
While health care spending plummeted early in the pandemic, recent analysis show that health care spending is rebounding. Overall health spending was up 3.4% in the fourth quarter of 2020, as compared to 2019. Over the full year, 2020 health spending was down 1% overall compared to 2019, although the impact of COVID-19 varied by type of provider. Spending on physician office visits was down 3.8% for the year, hospital spending was relatively stable (0.1% higher than 2019), while laboratory spending increased 9.1%.
The capacity of hospitals and other health care providers to withstand the pressures of the pandemic depends on a variety of factors, including their financial health prior to the pandemic, the impact of the pandemic on revenue and expenses, and how much assistance they received from the federal government. After a drop in hospital admissions and revenue during the Spring of 2020, hospital revenues largely rebounded by June 2020, according to the Medicare Payment Advisory Commission (MedPAC). Federal coronavirus relief funds and cost reductions allowed some but not all hospitals to remain profitable during the first three quarters of 2020. However, uncertainty remains following the winter spike in COVID-19 and hospital admissions and spending remained below what would have been expected in the absence of the pandemic through early April 2021, according to an analysis from KFF and EPIC Health Research Network. Many rural hospitals were struggling before and during the pandemic, with 19 rural hospitals closing in 2020. According to a Medicaid and CHIP Payment and Access Commission (MACPAC) report, critical access hospitals and other rural hospitals appear to have received more provider relief funds as a share of their operating expenses than other types of hospitals, but it is not clear if the assistance they have received will be sufficient to prevent additional closures that would further impact access.
The impact on physicians varied by type of service, according to the Medicare Payment Advisory Commission (MedPAC), but between June and early December, the volume of total primary care visits (including telehealth) and elective services remained close to or just below the 2019 levels. MedPAC also found that new federal assistance made available to skilled nursing facilities helped to offset much of their financial losses and costs incurred due to COVID-19. However, skilled nursing facility volume remains below pre-pandemic levels and therefore the longer-term effects of lower utilization for some facilities remains uncertain. While service utilization has largely rebounded since the lowest points during the pandemic, the long-term fiscal impact on hospitals and other providers remains unclear, particularly in light of the Delta variant.
Safety-net providers, including those with a high share of Medicaid and uninsured patients, have been at risk of financial strain during the pandemic, according to a MACPAC report. Contributing factors include low operating margins and the pandemic’s disproportionate impact on populations primarily covered by Medicaid, including people of color and those who use long-term services and supports. A MACPAC review of provider relief fund applications submitted as of November 26, 2020 (after the phase three general distribution application deadline closed), found that about 18% of Medicaid and CHIP providers who are not enrolled in Medicare received federal provider relief funds, compared to virtually all Medicare providers, and about 54% of all providers potentially eligible for relief funds. Providers that tend to serve Medicaid, but not Medicare, patients, such as pediatrics, home and community-based services, and behavioral health, were less likely to have received federal provider relief funds, compared to Medicare-enrolled providers such as hospitals, according to the MACPAC report. A recent KFF survey of state Medicaid home and community based services (HCBS) programs found that 2/3 of responding states (25 out of 38) reported a permanent HCBS provider closure during the pandemic, with most of these states experiencing permanent closure of more than one HCBS provider type.
Now, more than one and a half years into the pandemic, Congress has provided additional financial protection for hospitals and other health care providers by continuing to waive the automatic 2% reduction in Medicare payments that would be required under budget rules, known as sequestration. That 2% cut was scheduled to be reinstated in April 2021, but Congress has delayed it until the end of the year. Unless Congress intervenes, which they have routinely done in the past, a separate Medicare sequestration of 4% would be triggered under statutory PAYGO at the end of the year, because the recently enacted American Rescue Plan (ARP) is projected to increase the deficit by $1.9 trillion.
In addition to the temporary suspension of the sequester, policymakers have adopted a range of other programs that offer financial assistance to providers during the pandemic.
Provider relief fund: The $178 billion provider relief fund gave virtually all Medicare-enrolled health care providers grants that amounted to at least 2% of their previous annual patient revenue. These grants could be used to cover lost revenue and unreimbursed costs associated with the pandemic. Distributing grants as a percent of revenue allowed HHS to quickly give grants to a diverse set of providers enrolled in Medicare, but analysis of hospital data shows it favored providers with a larger share of revenue from private insurance since private insurers tend to reimburse at higher rates than Medicare and Medicaid. Additionally, the initial automatic funding distribution in April 2020 excluded Medicaid and CHIP providers who were not enrolled in Medicare (38% of all Medicaid/CHIP providers); these providers were unable to apply for federal provider relief funds until June 2020. Certain providers—including skilled nursing facilities, safety net hospitals, and hospitals that treated a large number of COVID-19 patients early in the pandemic—were among those that later qualified for additional grants (see Figure 1). The Trump administration also allocated $10 billion from this fund to support vaccine and therapeutic development and procurement activities (Operation Warp Speed), according to the Government Accountability Office (GAO). Approximately $24 billion of the fund remains unallocated. However, not all of the allocated funds have been obligated. A recent analysis by the GAO estimates the unobligated amount to be $43.7 billion as of May 31, 2021, accounting for 25% of the total provider relief funds.
- Medicare Accelerated and Advance Payment Programs: Health care providers that participate in traditional Medicare were eligible for loans through the Medicare Accelerated and Advance Payment Programs, which helps providers facing cash flow disruptions during an emergency. About 80% of the $100 billion in loans went to hospitals. Repayment for the loans was originally set to begin in August of 2020, but Congress delayed the start date for repayments until one year after providers received the loans, which CMS says began as early as March 30, 2021 for those providers and suppliers that received loans on March 30, 2020. Once repayment begins, a portion of the new Medicare claims will be reduced to repay the loans (25% during the first 11 months of repayment and 50% during the next six months).
- Paycheck Protection Program (PPP) and Other Loans: Many health care providers were eligible for some of the loan programs included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act, including the PPP. Under the PPP for small businesses, loans are forgiven if employers do not lay off workers and meet other criteria. As of August, 2020, health care providers received nearly $68 billion of the $525 billion in PPP loans that were distributed in 2020. In 2021, health care providers have received $29 billion of the $278 billion in PPP loans that have been distributed this year. The CARES Act also appropriated $454 billion for loans to larger businesses—including hospitals—but the eligibility criteria for those loans have limited their reach.
- Increase in Medicare COVID-19 inpatient reimbursement: Medicare has increased all inpatient reimbursement for COVID-19 patients by 20% during the public health emergency (PHE), which has recently been renewed through October 17, 2021. Additionally, under the New COVID-19 Treatments Add-on Payment (NCTAP) policy, eligible providers in the inpatient setting receive additional payments for certain COVID-19 treatments, such as remdesivir or convalescent plasma. In order to incentivize inpatient hospitals to continue providing new COVID-19 treatments beyond the end of the PHE, CMS recently extended the NCTAP for certain eligible technologies through the end of the fiscal year in which the PHE ends. Beneficiaries receiving inpatient care for treatment of COVID-19 are subject to cost sharing (deductible and copayments for extended stays) which Medicare does not cover.
- Reimbursement for COVID-19 vaccination administration: Medicare increased its reimbursement for COVID-19 vaccine administration to $40 per dose. Most states have policies in place to increase Medicaid payments for COVID-19 vaccine administration to 100% of the Medicare rate. Medicare and Medicaid beneficiaries are not subject to any cost sharing for the COVID-19 vaccine and administration. For the uninsured and underinsured, a portion of the provider relief funds are being used to reimburse providers for administering COVID-19 vaccines to uninsured or underinsured individuals.
- Medicaid options to support providers: The coronavirus pandemic resulted in financial strain for Medicaid providers. As of July 1, 2021, 41 states increased provider payment rates for a range of provider types via Disaster-Relief State Plan Amendments (SPAs) or other administrative authority, 40 states did so for HCBS waivers specifically using Appendix K, and two states received approval for Section 1115 waivers that increased payment rates for HCBS. States were also able to use retainer payments for certain HCBS providers as well as directed payments through managed care. A recent KFF survey of state Medicaid HCBS programs found that most states that reported using retainer payments found that the initial federal time limit was insufficient to fully support HCBS providers during the pandemic; CMS subsequently revised federal policy to allow states to offer additional retainer payment episodes, recognizing the pandemic’s extended duration.
- Additional funds in the ARP: The American Rescue Plan (ARP) includes $8.5 billion for rural health care providers to help cover lost revenue and costs associated with COVID-19. The ARP also includes $7.6 billion for community health centers and $200 million to support infection control and vaccination uptake at skilled nursing facilities. On May 2021,
HHS announced the allocation of $4.8 billion from ARP funding to support COVID-19 testing for the uninsured. The ARP also provides a one-year 10 percentage point increase in federal Medicaid matching funds for HCBS, an estimated $11 billion nationally, to support state activities to expand and strengthen HCBS, including addressing shorter-term COVID-related HCBS needs and engaging in longer-term HCBS capacity building. The two initiatives most frequently reported by states as potential uses of the new funds were increasing HCBS provider payment rates and workforce recruitment.
When hospitals and other health care providers experienced steep drops in revenue early in the pandemic, Congress stepped in with an infusion of funds to bolster these providers. With $40.7 billion of the provider relief fund still unobligated, according to the GAO, hospital industry stakeholders and other provider groups expressed concerns about the potential use of provider relief funds to finance the bipartisan infrastructure package. However, based on the most recent draft of the infrastructure bill, provider relief funds are not included as a funding source. Currently, HHS has not yet issued additional information on the timing of the next disbursements of the funds. As the highly contagious Delta variant of the virus continues to spread, and as hospitals report being at capacity, particularly in areas with lower vaccination rates, the financial impact of the pandemic across providers and communities remains unclear.
This work was supported in part by Arnold Ventures. We value our funders. KFF maintains full editorial control over all of its policy analysis, polling, and journalism activities. An earlier version of this brief was co-authored by Karyn Schwartz who, at the time, was with KFF.