On March 27, 2020, President Trump signed a $2 trillion economic stimulus bill into law. The Coronavirus Aid, Relief, and Economic Security (CARES) Act is the largest stimulus package ever passed and represents the most far-reaching step the U.S. government has taken yet to address the COVID-19 pandemic. Read on for our takeaways and implications for key industry segments, including hospitals, physician practices, post-acute care providers, payers, pharma and device manufacturers, and health tech companies.
Key takeaways
- The CARES Act was first and foremost written to address the economic fallout associated with the COVID-19 pandemic; of the $2 trillion included in the bill, only about $150 billion is earmarked specifically for the health care industry. As a result, stakeholders across all industry segments are likely to push for additional support and funding moving forward.
- While all industry stakeholders—including hospitals—will continue to advocate for additional funding, lack of significant amounts of dedicated funding for health plans and physician practices will likely encourage those industry segments to be particularly proactive in ramping up advocacy efforts.
- The Act focuses primarily on helping the health care industry navigate the most immediate needs associated with the pandemic, like helping hospitals manage the immediate financial fallout associated with influxes of COVID-related cases and encouraging manufacturers to expedite development of necessary drugs and supplies. We anticipate that many industry members will require (and request) additional support to weather the longer-term financial impacts that are likely to persist even after the outbreak abates.
- The $100 billion Public Health and Social Services Emergency Fund that has been widely cited as a funding pool for hospitals is actually targeted at providers more broadly. While detailed guidance from HHS is still pending, this could set the stage for a potential battle between hospitals, physician practices, and post-acute care providers, all of whom may be competing for the same pool of funds.
- The most lasting impact of the bill on the health care industry may be its provisions related to the expansion of telehealth services, which touch almost every segment of the industry and stand to further accelerate a significant uptick in telehealth utilization that is already underway.
Use the interactive menu below to go deeper into the implications for key industry segments
Hospitals and health systems
Analysis by Emily Connelly
Overview
The CARES Act includes several provisions designed to ease the financial burden on hospitals and health systems as a result of increased expenses and declining revenue amid the COVID-19 pandemic, although it defers the details on how to apply for funding and how funds will be distributed to HHS. While such funds will help mitigate the short-term expense pressures facing hospitals, the economic downturn, and skyrocketing unemployment levels will have a significant, longer-term impact on hospital revenue—and the stimulus package will do little to relieve those pressures.
Short-term implications
In the near term, we expect nearly all hospitals and health systems to see an increase in operating expenses as a result of increased demand for labor and supplies. Many will also see significantly declining revenue as they postpone and cancel elective procedures—and as some suspend billing and collections for COVID-19-related testing and treatment.
The Act’s Public Health and Social Services Emergency Fund, Medicare add-on payment, and accelerated Medicare prepayments should help hospitals address both increased costs as well as declining revenue in the immediate term. However, while the Public Health and Social Services Emergency Fund’s $100 billion may seem like a significant amount, it is possible that these funds will not go very far after being divided among all eligible providers for all eligible expenses and lost revenue. Hospitals should plan to apply for these funds as early as possible in the event that they are evaluated on a first come, first served basis.
Long-term implications
Even after the surge of COVID-related hospitalizations passes and operating expenses begin to decline, hospitals will continue to face persistent revenue-associated challenges. First, despite cost-sharing concessions from insurance companies, many patients are likely to face very high medical bills. While the Act mandates that insurance companies waive cost-sharing for testing, patients will still be responsible for their portion of treatment expenses. Bad debt is almost certain to increase absent swift action by health plans—as of April 1, Aetna, Cigna, Humana, and UnitedHealthcare have announced that they will also waive cost-sharing for treatment.
Moreover, unemployment levels, the pace of economic recovery, and the resulting number of uninsured individuals will impact whether canceled and postponed elective procedures are ever rescheduled. Former patients may decide to continue delaying or completely forgo previously planned procedures in the face of unemployment or other financial strains associated with an economic downturn.
What’s missing?
The biggest outstanding question for hospitals is around how the $100 billion fund will be disbursed. The Act includes very limited guidance as to how these funds will be distributed, merely stating that providers should submit “an application that includes a statement justifying the need of the provider” and that HHS will review applications and make payments on a rolling basis. Providers will need to carefully monitor additional guidance from HHS to ensure they maintain appropriate documentation for eventual submission and reimbursement.
Physician practices
Analysis by Sarah Hostetter and Eliza Campbell
Overview
The CARES Act includes several provisions that should mitigate current and anticipated physician practice revenue shortfalls, but groups will need additional support to sustain operations. The bill addresses some of the most immediate needs of physician groups—most notably by increasing the ability to bill for virtual visits and providing more rapid access to Medicare payments. However, there are outstanding questions as to whether physician practices will be able to secure sufficient funds in the face of competition from other providers and small businesses—and do so quickly enough to sustain their finances in the long-term.
Short-term implications
The CARES Act addressed a few key physician practice revenue concerns head-on. Most notably, the bill relaxes telehealth requirements, including the ability to bill for telehealth visits for new patients and services originating in patients’ and providers’ homes. Additionally, the Act increases reimbursement for telehealth services, putting payment on par with in-person visits. This provision will be critical in allowing physicians to continue generating Medicare revenue as they see declines in preventative care and elective procedures.
In addition, the bill takes steps to free up additional Medicare funds more quickly through advanced Medicare payments of up to 100% for three months. Notably, CMS’ newest guidance that they will aim to review and issue these payments within seven days could alleviate some of the immediate revenue needs for physician practices. Finally, suspension of the 2% Medicare sequestration should provide some relief to practices, though we anticipate its impact will be limited.
Long-term implications
The impact of the bill on physician practice success and longevity will hinge on the ability of groups to access more substantial funds through the $100 billion Public Health and Social Services Emergency Fund and the $350 billion Small Business Loans and Paycheck Protection Program—however, the details of those programs remain limited. Though any physician group who provides diagnosis, testing, and/or treatment for COVID-19 can apply for the $100 billion provider fund, there is no guidance thus far as to how those funds will be allocated. Physician practices may need to compete with hospitals and health systems for these funds and may struggle to make a compelling case when juxtaposed with hospitals seeing a dramatic influx of inpatient COVID-19 cases.
Small business loans are also an option for most physician practices with less than 500 employees who have seen declines in revenue—even if they do not diagnose or treat COVID-19 patients. Though there is a clearer mechanism to immediately apply for these loans, practices will eventually have to repay those funds. Both funding pools require an application, so likely funds won’t be distributed for some time. Groups should act as quickly as possible once mechanisms and guidance are released. We anticipate high demand for both funding sources, which could slow distribution and offer a first mover advantage.
What’s missing?
Coverage for non-video telehealth was omitted from the bill. Being able to bill for telephone-based visits would allow cash-strapped physician practices to stand up telehealth more quickly and with a lower up-front investment. Second, though the bill took steps to halt sequestration of physician payments and provide more immediate access to funds, it did not go as far as increasing Medicare Physician Fee Schedule (MPFS) reimbursement to ambulatory practices. Lastly, the bill was largely limited to Medicare funding and billing and only mandated private payers cover COVID-19 testing and future vaccines. Since private payers are often the primary source of income for physician practices, groups will likely continue to see revenue shortfalls in private payer reimbursement and telehealth coverage if private payers do not follow Medicare’s lead.
Post-acute care providers
Analysis by Jared Landis and Carolyn Buys
Overview
The CARES Act moves to significantly increase access to post-acute care—as a means of freeing up hospital capacity—by easing prior restrictions around admissions requirements in various settings. Under the Act, hospitals are permitted to discharge patients to IRF regardless of whether they require at least three hours of therapy per day, and to LTACHs without requiring 50% of patients to meet the definition of “chronically critically ill.” Provisions were also passed to allow physician assistants, nurse practitioners, and other advanced practice providers to order home health services directly. The Act provides temporary financial relief and support for many post-acute providers most pressing current challenges but fails to offer robust guidance for providers around increased home health and therapy access. Further, while opportunities exist for nursing facilities to benefit from the Act directly, it does little to address the fundamental funding and staffing challenges nursing facilities face in managing COVID-19 outbreaks presently.
Short-term implications
By easing admissions requirements, the Act will position post-acute providers to play a critical role in reducing hospital capacity challenges by allowing them to accept a wider variety of patients, faster. As a result, post-acute providers can expect an influx of patients that are either more acute or have different needs than patients typically served within their sector. This will likely have an impact on provider staffing and protocols in the short-term.
The legislation also provides temporary financial relief and workforce support for many post-acute providers. The Act suspends the 2% Medicare sequestration cuts through the end of this year, freeing up additional dollars for providers to make the necessary changes to manage the current crisis. To improve provider access to essential personnel, it provides $3.5 billion in state grants to support child care for health care sector workers, emergency responders, and other essential personnel. It also increases grant funding for entry-level health professionals through the Health Profession Opportunity Grant. Such professionals, which include CNAs and home health aides, are critical to the continued function of post-acute providers now and in the future.
The Act seeks to support providers across the continuum in their infection control efforts by standing up dedicated funding for infection control. At the same time, it allocates $200 million toward CMS infection-control inspections at nursing homes. Nursing homes, in particular, will have to tap into the additional funding effectively in order to comply with increased oversight.
Lastly, the Act provides $150 million for an Extended Care Facility program. Under the program, facilities can use funds for construction projects that help them “prepare for and respond to” coronavirus. This could result in providers significantly altering the structure of their buildings or converting rooms into needed isolation units in the short-term.
Long-term implications
The Act paves the way for future workforce enhancement and improved telehealth access for post-acute providers. It provides a five-year reauthorization for the Geriatrics Workforce Enhancement Program and announces a new training program for clinical geriatrics. The programs will have $41 million in funding each year from fiscal year 2021 through 2025. This allocation may help post-acute and long-term care providers build up critical workforce volume in the future.
The Act also enhances telehealth access through the HHS Telehealth Resource Center. The center will be allocated $29 million annually from fiscal year 2021 through 2025 to help home care, long-term care, and other preventive providers use new technologies through telehealth networks. Especially with the temporarily reduced restrictions on telehealth usage across settings, this additional funding may facilitate greater adoption among post-acute providers in the future.
As mentioned, the Act makes several changes to existing restrictions and/or requirements for when or how patients may access each sector of post-acute care. If post-acute providers successfully care for these new patient types, they will have a stronger case for extending these temporary admissions waivers long-term. Home health providers, in particular, have an opportunity to prove their value to the system, as providers and patients look to prevent the spread of the disease by avoiding facility-based post-acute care settings.
What’s missing?
Although the Act provides significant short-term flexibility, it provides limited guidance on how funds will be allocated to certain providers. Most notably, the Act does not specify how much of the $100 billion health care relief fund will be distributed to each sector. As many post-acute providers—nursing homes in particular—have been especially hard-hit by COVID-19 already, many industry advocates had hoped to see more specific legislation addressing immediate needs specific to their sector. In addition, there are still few opportunities for home health providers and therapists to be reimbursed for telehealth services, an essential service as the risk of patient-provider transmission remains high.
Finally, while the Act does provide funding to build up the post-acute and senior care workforce in the long-term, the short-term solution is additional training for entry-level staff that historically provide the majority of care in post-acute settings. As acuity across these settings will only rise across the next few months, providers would have benefited from additional legislation directing RN, advanced practice provider, and even physician support to post-acute settings, given the current severity of the crisis.
Payers
Analysis by Rachel Sokol and Natalie Trebes
Overview
Most of the CARES Act’s direct provisions for payers involve coverage requirements, like covering COVID testing and future vaccines without cost sharing and adding flexibility for telehealth coverage (e.g. permitting HDHP-HSAs to fully cover telehealth before the deductible). The Act also provides significant support for providers, employees, and purchaser businesses, which will affect health plans in the long term. However, its direct financial support for health plans is limited.
Short-term implications
Beyond immediate coverage requirements and telehealth flexibilities, the Act may improve revenue stability in government lines of business. The suspended sequester gives Medicare Advantage plans a payment boost. States are given flexibility to extend Medicaid enrollment to uninsured individuals for COVID testing coverage. Both of these will increase plan revenues slightly, potentially helping them withstand emerging financial pressures.
The Act also extends the definition of uninsured to include people whose coverage doesn’t include essential health benefits—a surprising move given the administration’s promotion of association and short term plans. This provision could put pressure on Medicaid plans to provide coverage for these individuals’ care without corresponding payment. It may also erode the prevalence/support for short term plans.
Finally, additional unemployment insurance may lead some higher income, newly laid off individuals to qualify for Medicaid (calculated on monthly income), but not marketplace subsidies (calculated on annual income). This could skew the risk profiles of both business lines, challenging insurers' actuarial models.
Long-term implications
The biggest impacts to payers in the CARES Act—especially in the long-term—come primarily from how it supports their purchasers and their network providers rather than the plan itself. Employer purchasers will be helped by payroll relief, small business loans, and expanded unemployment insurance eligibility—likely enabling many (especially smaller employers) to limit layoffs, and preserving the number of employees that retain their insurance coverage. In particular, small business loans can be used for insurance premiums.
Payroll relief, small business loans, and new Medicare billing flexibilities and reimbursement support will help independent, primarily smaller/rural practices stay in business. The Medicare reimbursement support provisions will also assist hospitals in maintaining a feasible margin. How successful these supports are will have significant long-term implications for health plans’ network design and management: financially-challenged provider organizations will seek to negotiate higher payment rates; newly-closed or integrated independent practices will also challenge health plan rate negotiation as well as referral management capabilities.
Finally, as has been noted in many places, continued support for telehealth will likely linger into the post-COVID world, in both member preference and provider adoption—driving new plan product designs.
What’s missing?
The CARES act doesn’t address surprise billing. With significant amounts of COVID-related care originating in the ED, it is likely members will receive care from out-of-network providers. This may reinvigorate Congress’ willpower to legislate on surprise billing in the future.
The CARES act also does not extend any provisions from the ACA (reinsurance, risk corridors) that might help plans with particularly high claims expenses from the pandemic. That will likely mean higher premiums in the coming year, as plans have difficulty predicting the total risk exposure and will seek to balance against that uncertainty. Finally, Congress has not delayed or lessened many government plan quality and reporting requirements, such as Medicare Advantage Star Ratings or risk adjustment. And depending on the degree to which the employment relief provisions may apply to plan business activities and staff, government plans may face significant swings in their expected revenues.
Pharmaceutical and device manufacturers
Analysis by Manasi Kapoor, Pam Divack, and Nick Hula
Overview
The stimulus package provides immediate incentives for pharmaceutical manufacturers to develop therapies for COVID-19 and for device manufacturers to increase production of necessary medical equipment; it also enables both to prepare for supply chain shortages. However, it lacks critical guidance as to how pharmaceutical manufacturers should continue with their operations today, including what drugs/ingredients are deemed “critical” to COVID-19, or how to proceed with previously started novel drug development. It also lacks guidance on how device manufacturers will need to distribute critical supplies.
Short-term implications
Novel drug/device development and approvals are likely to spike in the short-term as a result of the CARES Act’s guidance and funding for COVID-19 R&D. The package funds federal agencies (i.e. NIH, BARDA, CDC) to investigate novel drugs, allows the FDA to expedite the drug and device review process, and incentivizes manufacturers of over-the-counter drugs to develop products for COVID-19 by granting them limited market exclusivity. Pharmaceutical companies may see an immediate surge in revenue as the CARES Act requires Medicare prescription drug plans to allow enrollees to fill or refill a 90-day supply of part D drugs during this emergency period. Additionally, government purchasing of critical drugs and vaccines for the Strategic National Stockpile may also lead to a rise in revenue for certain manufacturers. Medical supply/technology manufacturers with critical-to-the-pandemic supplies will see greater demand for COVID-19 related products, but they’ll see diminished demand for products used in elective procedures, as hospitals shift focus and resources to caring for patients directly impacted by the crisis.
Long-term implications
Both pharmaceutical and device manufacturers will face significant changes to their supply chain processes in the long-term. Pharmaceutical companies may encounter potential drug and active ingredient shortages as a result of federal plans to restock the National Stockpile. They will also encounter increased regulation over their supply chains as a result of federally required contingency and redundancy plans—both for COVID-19 related drugs and for other key active ingredients—and they’ll face increased regulation over existing over-the-counter products (an area with limited oversight in the past). Both pharmaceutical and medical supply manufacturers may also encounter increased pressure to source domestically, following The National Academies review of U.S. dependency on foreign manufacturing. Additionally, as payers ease restrictions on telehealth, device manufacturers may see increased demand for and use of remote patient monitoring technologies and devices used to support these virtual interactions.
What’s missing?
The bill does not provide guidance for pharmaceutical manufacturers about how to proceed with existing, non-COVID19 related clinical trials—many of which have already been postponed or cancelled. It also does not specify how the $16B allocated to restocking the Strategic National Stockpile will be distributed across various drugs, devices, and markets, and it does not specify which supplies are deemed “critical” to COVID-19—necessary information that manufacturers need to prepare their supply chains. Of note, the CARES Act does not provide subsidies for COBRA coverage or other provisions for expanded coverage, which will be increasingly important as the unemployment rate rises and people lose their employer-sponsored health care coverage. This loss of coverage will undoubtedly impact patient access to non-COVID-19 related health care services (esp. elective procedures) and prescription drugs. The Act does not include further drug pricing reforms previously debated in the Senate. Lastly, while device manufacturers must provide FDA with reports on discontinuations or interruptions in production during emergencies, there is far less stringency to provide shortage contingency plans.
Health care technology companies
Analysis by John League
Overview
CARES promotes telehealth usage through policy and funding aimed at easing restrictions on the endpoints of patient-provider interactions. While it does include funding and directives for specific telehealth-related investments, it lacks dedicated funding (with one notable exception) to help connect those endpoints through investment in robust telehealth platforms. CARES largely overlooks information technology vendors; however, its efforts to support provider organizations will help ensure the sustainability of IT companies—and is likely the primary financial concern of such organizations at the moment.
Short-term implications
Previous restrictions on the endpoints of telehealth—patients and providers—have been lifted. These steps should increase both supply and demand for telehealth during the public health emergency. More patients are now eligible for Medicare telehealth visits. Providers will be compensated for shifting typical in-person visits to virtual channels.
For patients, previous legislation rolled back limitations on which patients in which locations can access telehealth. Originating sites have been expanded to include patients’ homes and “any health care facility.” CARES also codifies CMS’ decision not to enforce requirements that patients must have an existing relationship with a specific provider or practice in order to access telehealth. CARES also allows high-deductible health plans and health savings accounts to cover telehealth visits before patients have met their deductible. Funding allocated to Community Health Centers and the Indian Health Service includes directives to use those funds to expand telehealth.
For clinicians, previous legislation expanded Medicare reimbursement to ensure parity between in-person and virtual visits. CARES also allows Federally Qualified Healthcare Centers or Rural Health Clinics to provide telehealth visits to patients in their homes and allows providers to conduct hospice recertification visits virtually instead of in-person.
Long-term implications
CARES provides directives or funding for three specific initiatives with long-term positive implications for broadening the use of telehealth.
First, CARES requires the Secretary of HHS to consider telehealth applications for home health. Many home health services are currently provided by health care workers who are not qualified providers under Medicare. Any reimbursement expansion that includes services provided by aides, would likely encourage use of home health. Even now, many hospitals would prefer to discharge COVID patients to isolate at home rather than sending them to rehab or skilled nursing facilities.
Second, CARES changes the language of previous legislation to require “evidence-based” projects to assess the impact of telehealth on access to care. If recent changes drive broader patient and provider adoption of telehealth, evidence-based demonstrations could be a valuable source of information on telehealth’s efficacy, quality, and outcomes for payers and policymakers.
Third, CARES provides $200 million to the FCC to support the expansion of telehealth. The chairman of the FCC subsequently has proposed to use this funding to help eligible providers purchase equipment and services necessary to expand their reach through telehealth. This proposal requires broader FCC approval, and the focus on providers is not mandated in the CARES Act.
What’s missing?
CARES provides no funding specifically to help connect the patient-provider endpoints of telehealth—although some federal agencies have flexibility to allocate their funding in this way, as the FCC chairman has proposed. CARES appears to presume that providers already have telehealth systems in place, or that policies that allow “everyday” means of communication (smartphones, FaceTime, Skype, etc.) or provide funds to “expand telehealth” will be sufficient to enable effective telehealth visits.
Providers now have more freedom and incentive to connect with patients via telehealth, but many provider organizations lack the infrastructure to do so. In 2019, only 64% of hospitals and health systems had any kind of consumer telehealth program, and only 23% of internal/family physicians reported offering video visits. Expanded reimbursement does provide a reliable stream of revenue for telehealth programs, but no funding for upfront costs. While CMS and HHS will permit telehealth visits via “everyday” means like smartphones, FaceTime, and Skype, those platforms are not secure, adapted to clinical uses, or integrated into clinical documentation systems.
CARES also gives no specific funding or directives regarding remote patient monitoring (RPM). If virtual visits are to be effective beyond behavioral health and acute-care triage uses, they must be capable of capturing vital signs and basic physical examination information. CARES does not proscribe investment in such capabilities, but neither does it incentivize their use as it does with virtual visits.
Finally, CARES largely overlooks information technology vendors; however, its efforts to support provider organizations will help ensure the sustainability of IT companies—and is likely the primary financial concern of such organizations at the moment.