How does a COVID-19 United States Healthcare System Rebuild?
With each passing week, we are continuously seeing the United States national healthcare system being knocked to its knees. We have never seen an impact bring the entire healthcare industry in the United States to its knees before in the last 75 years; not regional wars, not recession or even economic crisis.
In very few areas, we have witnessed hospitals above capacity, yet still losing money. Even though the United States government guaranteed that all hospitals and providers would be paid for COVID-19 care, this was still not enough to make up for the cancellation of “elective” procedures. Further, we know that many Americans have delayed care due to availability of their provider or fear of being exposed to the virus; we know this because critical procedures are way below normal. An article from the Washington Post discusses the impact of patients delaying care, and the impact it is likely having on their health, as well as a financial impact on providers. See “Delays in Medical Care are Devastating Providers.”
Despite all that has happened to providers, there are actions they could have taken, and can still take, to minimize these deep financial effects in the future. We are confident that after 31 years in the healthcare industry, nothing in healthcare will be the same going forward. Healthcare as we have known it to be, is entering a new era. Although, the pandemic was a Gray Rhino that led healthcare into a Black Swan, we have identified the initiating event for healthcare as a “Golden Rat.”
The global pandemic brought to the surface many weaknesses in the United States healthcare system. In fact, it could be said that the surface cracks we had seen in the healthcare delivery system have become overnight craters that are leading to fully tectonic shifts. We are all witnessing these events on a real-time basis; I can only imagine how historians will document what we are all living through today.
However, as mentioned in our last blog, the opportunity we have is witnessing the equivalence of the Renaissance after the Black Death that affected Italy, Europe and parts of Asia in the 14th century.
In this new world, we see there will be a transition from the decades old Fee-For-Service (FFS) model and we believe will be nearly obsolete by the end of the decade, years ahead of what had been the best-case scenario just a few months ago. The FFS, also known as the “encounter-based” fee schedule, is much like a tollbooth on the highway and the provider gets paid for every patient that they see, but only when they see them. This traditional payment model was one of the most prominent reasons for the severe impact on independent primary care practices (internists, primary care physicians, pediatricians and ob/gyns) as they are nearly all on the FFS or encounter-based payment model. Because so many of our primary care physicians have employed the encounter-based or fee for service model, physicians could not see patients during quarantine which led to zero billing and worse, zero revenue. Further, because most primary care physicians are at the bottom of the pay scale, they had far less reserves and much less resilience and sustainability than other specialty physician practices had – not to mention, few are on the subscription model, or value-based care model we discuss below.
We expect doctors and hospitals will make a migration to what other industries call a subscription model for healthcare. Ironically, this model drives the healthcare insurance industry that may have actually invented the U.S. subscription model of generating revenue; however, we might be surprised at today’s modern subscription model-based technology companies.
The United States healthcare companies receive monthly premiums for what they referred to as “members” whether paid by the consumer, possibly via the Affordable Care Act, by their employers, or the United States government through the Department of Health and Human Services (DHHS), Centers for Medicare and Medicaid Services (CMS). I began with my first foray into healthcare as an angel investor, and I quickly realized I needed a very deep dive into how healthcare economics worked (I was never going to be a provider). The first thing I did was study for and pass the test on becoming a life health and variable annuity agent in the state of Florida, and what amazing education it proved to be!
Primary care providers may contract with payers and insurance companies to receive monthly “capitation” payments that can consist of as little as USD $20 per member per month (PMPM), or as much as USD $200 PMPM (depends on age and program). This capitation is given to primary care providers to provide for the services that the member needs and includes an adjustment for referring for specialized services. The insurance company pays for all the approved prescriptions and diagnostics, as needed. The interesting thing about this model is that doctors receive the PMPM whether the patient shows up one time a year for their annual physical or shows up two or three times a month. This model is not based on encounters as the FFS model discussed above. The doctor’s sole responsibility is to keep the patient as healthy as possible, good for the physician and good for the patient. In many cases, the doctor can receive a bonus based on improvements in the patient’s health (quality of care), additional documentations, and effective use of other healthcare resources.
In upcoming blogs, we will dive even further into other revenue models that improve providers’ financial stability and, in our opinion, align the financial and economic incentives for payer, provider and patient – creating more of a “win-win-win” situation.
As we have previously done in this series, we continue to share a small collection of RECENT headlines that go beyond the articles we have shared in previous blogs:
As physician offices reopen with changes, patient visits ramp up
The COVID-19 shutdown will cost Americans millions of years of life
Massachusetts physician practices considering closure, consolidation