Hospitals, physician practices, and other provider organizations are dealing with unprecedented challenges in the present public health emergency following the spread of the novel coronavirus (COVID-19). Providers can expect to continue feeling the impact of the COVID-19 pandemic long after the public health crisis abates. Given that payers control a significant portion of providers' revenue, the financial pressure on providers and successful navigation of the post-pandemic environment will require providers to reset their relationship with payers.
In the pre-pandemic world, providers operated in a landscape characterized by steady and growing patient volumes, broad health insurance coverage, and generally adequate reimbursement. This landscape allowed providers to implement value-based payment models with insurers and other payers. COVID-19 has fundamentally disrupted this landscape. Providers must now look to adapt their payer relationships accordingly.
This publication jointly authored by the lawyers of Jones Day and by BDO outlines some of the current trends providers are facing with respect to their payer relationships, and offers insight on strategies for providers when working with payers in navigating their post-COVID-19 relationships.
Increased Financial Challenges from Lower Patient Volumes and Revenue
In order to preserve resources to deal with COVID-19 patients, hospitals and other providers paused non-emergent elective services. Though hospitals and certain physician practices are experiencing a near-term uptick in COVIDrelated patient cases, and the current restrictions on elective procedures will eventually be curtailed, the cancellation of elective procedures and outpatient services has significantly reduced the volume and associated revenue for many providers. The impact on providers varies depending on whether a provider is for-profit or not-for-profit, large or small, rural or metropolitan, as well as based on case-mix and historic specialty. The revenue loss will be especially acute for hospitals, physician groups, and post-acute providers.
Invalid Actuarial Assumptions and Financial Modeling
The actuarial assumptions and financial modeling around utilization and unit price that payers and providers relied upon in formulating reimbursement methodologies and rates may no longer be valid or credible as a result of the disruption caused by the pandemic. These actuarial assumptions are critical for a percent of premium, capitation, and value-based care incentive arrangements. Similarly, the unprecedented shift in patient and service mix has rendered previously negotiated unit prices insufficient for most providers’ postpandemic budget needs. Payers and providers alike recognize that the disruption in actuarial and other assumptions that are the foundation of current payer contracts warrant changes in contract pricing structures, reimbursement methodologies, and contractual terms.
