Funding for Health Care Providers During the Pandemic: An Update
Starting early in the coronavirus pandemic, Congress 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 studies 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. Reports in the press and earnings statements suggest that some hospitals remained profitable through 2020. However, many rural hospitals were struggling before the pandemic, and 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, although the longer-term effects of lower utilization for some facilities remains uncertain.
Now, more than one year into the pandemic, Congress is poised to provide 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. During 2020, Congress waived this payment reduction through March 31, 2021 in response to concerns raised by providers. The House recently passed a bill that would continue to waive the 2% reduction in Medicare rates through the end of 2021.
The House-passed bill would also exempt the American Rescue Plan (ARP) from separate budgetary rules known as PAYGO. PAYGO requires the administration to impose spending cuts if Congress passes a law with spending increases or tax cuts that result in an increase the deficit. Without the House-passed legislation, PAYGO rules would require the Administration to reduce spending because the Congressional Budget Office (CBO) estimates the ARP will increase the deficit by $1.9 trillion. However, PAYGO has never been implemented because Congress has always blocked it from taking effect. Unless Congress intervenes, the recently enacted ARP would trigger a 4% decrease in Medicare payment rates in 2022.
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 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, 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. 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 Operation Warp Speed contracts, according to press accounts. As of March 19, 2021, an estimated $15 billion of the fund had not yet been allocated. In addition, some providers returned the funds they received.
- 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 will be in April 2021 for most providers. 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. Health care providers received nearly $68 billion of the $520 billion in PPP loans that have been distributed. 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 and vaccine administration: Medicare is increasing all inpatient reimbursement for COVID-19 patients by 20% during the public health emergency, which will likely remain in place throughout 2021. Medicare also recently increased its reimbursement for COVID-19 vaccine administration to $40 per dose.
- Additional funds in the ARP: The American Rescue Plan (ARP) includes $9 billion for rural health care providers to help cover lost revenue and costs associated with COVID-19. It also includes $7.6 billion for community health centers and $200 million to support infection control and vaccination uptake at skilled nursing facilities.
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. Health care spending overall has now largely stabilized, though the financial impact of the pandemic varies across communities and providers.
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.