Providers, Insurers Brace For Virus Financial Fallout
As state health care providers brace for waves of coronavirus patients, it’s uncertain how Oregon hospitals and health insurers will handle the financial strain.
An onslaught of high-cost coronavirus cases -- a single severely sick patient could cost a hospital $100,000 or more to treat -- combined with delay or cancelation of profitable elective surgical procedures, could push up expenses and hurt revenues of Oregon hospitals, almost all of which are nonprofits, experts said.
Health insurers, particularly the federally funded Medicare system for the elderly, also could be hammered, experts said, because it appears most of those who are seriously sickened by the virus are elderly.
But companies that issue commercial health insurance plans in Oregon also could take a hit. The state Department of Consumer and Business Services, which regulates insurers, said this week that it has asked those insurers to evaluate how the pandemic might affect their finances and operations. Government edicts can have sudden financial effects: The department this week ordered all insurers - not just health insurers - to give policy holders until at least April 23, and perhaps beyond, to pay premiums, and that insurers must suspend all cancelations for nonpayment until then.
The financial reverberations of the virus will be fully felt as the true scope of the pandemic surfaces in Oregon.
“It will all depend on how many people get sick and how many people get severely sick,” said Rajiv Sharma, a health economics professor at Portland State University.
A coronavirus patient who develops respiratory failure or septicemia who needs prolonged hospital treatment will be the most expensive to treat, he said. One in a less acute condition might cost $25,000 or more, he said.
Hospitals, of course, bill insurance companies. And if many of the patients are on Medicare, the federal government would bear much of the cost, said Jeff Luck, an associate professor of health management at Oregon State University.
However, Medicare reimbursement varies depending on the type of Medicare insurance patients have, he said. And treating coronavirus patients might involve using large amounts of costly disposable personal protective equipment for staff, and time-consuming cleaning of rooms and changing in and out of protective gear, he said. Meanwhile, many elective surgeries – typically highly profitable – would be pushed down the road.
Each hospital’s cost per bed would go up, and its revenue per bed would go down, he said.
Hospitals Have Big Reserves
Still, Oregon’s large nonprofit hospital systems appear in remarkably good shape to weather immediate financial problems: Most have accumulated impressive financial reserves in recent years.
Their monetary health is due in part to the state and federal governments expanding Medicaid insurance from 2014 onward to a greater number of Oregon residents. That sharply reduced the number of uninsured patients the hospitals had to take on as unreimbursed charity care.
“In that sense, hospitals in Oregon are in a better position compared to states that did not expand Medicaid,” Sharma said.
The financial strength is evident in hospitals’ investment portfolios, although these have been partly upended by the roughly 30 percent drop in stock values due to the coronavirus.
The giant Renton, Wash.-based Providence Health & Services system, with hospitals in Oregon and six other Western states, had an investment portfolio of over $12 billion, according to its latest report, issued prior to the stock market plunge. About 45 percent of its portfolio was in domestic and foreign stock. Offsetting the reserves, the system had about $6 billion in long-term debt.
Oregon’s flagship Oregon Health & Science University and its foundation have cash, reserves and investments totaling over $2.1 billion, according to the latest tallies for late February. OHSU’s foundation has been exposed to the stock market slide. As of late last year, nearly half of its roughly $1 billion-plus was in stocks. Offsetting its reserves, OHSU has about about $1 billion in long-term debt. In a report to its board of directors this week, OHSU said its financial position was "strong" but that it still wants to establish a $150 million line of bank credit to ensure extra liquidity for the months ahead.
Authorities Address Some Financial Issues
Finances may not be at the forefront of caregivers’ minds right now. In fact, the inability to get enough masks, suits and other personal protective equipment at any price has emerged as a dominant hospital concern nationwide.
“Right now financial considerations are secondary to trying to save lives and contain the damage as best we can,” Sharma said.
Still, authorities already are trying to address some financial issues. This week, Oregon officials directed health insurers to reimburse health care providers for telemedicine visits – telephone or video consultations – at rates adequate to allow providers to increase their telemedicine work. The state also urged insurers to reimburse telemedicine at the same rates as in-office visits. These moves should help providers, from hospitals to primary care clinics, switch to telemedicine without going deep into the red financially. Prior to the state order, many insurance policies reimbursed for telemedicine at just a fraction of the cost of an in-office.
As the crisis drags on, more money issues will surface.
If treating Medicare patients becomes a big financial burden, providers might press the federal government to increase reimbursements “to ease the pain,” said Luck, associate professor of health management at OSU.
The coronavirus might also impact the state’s Medicaid insurance program for low-income and disabled residents, he said. If Medicaid members with disabilities and chronic conditions become very costly to treat, the insurance companies -- coordinated care organizations – that run Medicaid region by region could ask the state and the federal government for extra payments, he said.
Ken Provencher, CEO of Springfield-based health insurer PacificSource, said the federal government plays a key role.
“We do believe that federal support will be critical to maintaining the long-term strength of our health care system,” said Provencher, whose nonprofit, which is part of Legacy Health, manages Medicare, Medicaid and commercial plans in Oregon and three other Western states.
Hospital systems appear reluctant to talk about money just now.
Several – OHSU, Legacy Health, and Providence - did not respond to requests for comment from The Lund Report.
Vancouver, Wash.-based PeaceHealth, a regional system with four hospitals in Oregon, declined to comment, saying it was focused on patient and community needs, but might comment later “when the full extent of any impacts are known.”
Like the other big nonprofit systems with major Oregon operations, PeaceHealth has substantial reserves: investments and cash totaling more than $2 billion as of 2018, the latest figures available. More than half of that was in the stock market.
Sharma said it’s important for hospitals to have reserves to fall back on. “But the longer that (the coronavirus crisis) goes on, the worse it gets” for them.
Commercial Insurers Also Have Big Reserves
Companies that offer commercial health insurance may not feel much of a hit from the coronavirus pandemic, Luck said. The population covered by most commercial insurance – typically people employed in the private sector or by the government – is younger and less likely to fall severely ill from the virus, Luck said. Also, many commercial health insurance companies buy reinsurance from other firms, which backstops them for high-cost patients, he said.
Some of Oregon’s biggest health insurers have substantial reserves.
Oregon’s largest commercial health insurer, Kaiser Foundation Health Plan of the Northwest, had a surplus of $383 million as of last year and covers more than 550,000 Oregonians with group, individual and Medicare plans, according to data from state regulators. Surplus is assets minus liabilities.
PacificSource, which has more than 500,000 members across Oregon, Idaho, Montana and Washington in commercial, Medicare and Medicaid plans, had nearly $800 million in assets and $417 million in net equity as of the end of February, Provencher said.
“We are concerned about member, employer and provider hardships due to the pandemic itself, the curtailment of essentially all elective procedures and routine office visits, and the impact of the related economic downturn,” Provencher said. PacificSource is “evaluating potential mitigations” and is “positioned to withstand the worst case scenarios,” he said
Just what those scenarios look like is hard to say.
OSU’s Luck said he fears the temporary patchwork of state and federal restrictions and recommendations, from business closures and tourism and travel curbs to social distancing and voluntary quarantining, may be loosened too quickly, allowing the coronavirus to stage a resurgence in a nationwide population that will still have little or no immunity. That’s what happened in the flu pandemic of 1918, he said. With coronavirus, countries such as South Korea, Singapore and Taiwan have shown that widespread testing, isolation of people who test positive, tracing of their contacts and strictly enforced quarantining can work, he said. These methods allow “other people to keep going to work and do their activities,” he said.
But in the United States, it’s unclear whether the states and the federal government would implement such restrictions. At the federal level, President Donald Trump is at odds with health experts, and across the country, different states are responding with highly varied levels of restrictions.
Watching humanity grapple with the virus, Luck said, “is kind of like watching an arm wrestling match between two really strong people. It’s hard to tell which one is going to win.”
You can reach Christian Wihtol at [email protected].