Time for another extension of the COVID-19 public health emergency?

Hospitals and other healthcare providers are starting to ask whether it would be prudent and appropriate for the government-declared public health emergency (PHE) to be extended once again.

The PHE was first declared by Alex Azar, the former Secretary of HHS, on Jan. 31, 2020. Since then, it has been renewed five times, with the most recent renewal occurring July 20, 2021, when current HHS Secretary Xavier Becerra extended the PHE to Oct. 20, 2021. The next extension would take the PHE through January 2022, although it’s not hard to imagine calls for still further extensions, given the current surge in COVID-19 cases in the South and among children too young to be vaccinated. 

PHE provisions affecting hospitals

Several important provisions imbedded in a PHE declaration have a direct impact on hospitals. Among some of the most impactful are:

• Access to “no-year’ funds that have been appropriated to the PHE Fund (i.e., funds available for an indefinite period that are not limited year to a single fiscal year) 
• Grant extensions or waived sanctions relating to the required submission of data or reports
• Medicare payment adjustments for certain Part B drugs 
• Waived Paperwork Reduction Act requirements 

The PHE also has meant a temporary 6.2% increase in the Medicaid Federal Medical Assistance Percentage (FMAP), and it prompted some states to adopt policy changes to expand Medicaid eligibility and streamline enrollment processes.1 The increased FMAP remains in effect until the end of the quarter in which the PHE expires, which means states will have more funds to use to help pay increased expenses — a provision that assists not only states but also hospitals, and safety net hospitals in particular.

Additional assistance from Congress

Congress has provided some help to hospitals and other healthcare providers by continuing to waive at least until the end of 2021 the annual automatic 2% reduction in Medicare payments required under sequestration. 

The primary financial assistance to hospitals came from the CARES (Coronavirus Aid, Relief and Economic Security) Act. The CARES Act Provider Relief Fund provided $178 billion to hospitals and healthcare providers: $72.4 billion from the CARES Act specifically, with $50 billion going to providers who participate in Medicare, based on their net patient revenue from all sources. That funding was intended to assist hospitals that were facing large numbers of COVID-19 admissions, which put increased pressure on their use of ICUs and ventilators and reduced or eliminated their ability to perform elective inpatient surgery and most outpatient surgery, both of which are important sources of cross-subsidy to hospitals.

Trends point to ongoing challenges

Even in the Spring, hospital data remained below expected levels. During the first full week in April, hospital admissions were only 85% of expectations based on historic patterns — and 89% of expectations averaged over the first quarter of 2021.2 Despite the number of vaccinations in the U.S. earlier in the year, COVID-19 still dominated hospitals’ experiences. 

Two new trends are further challenging many hospitals’ recovery efforts. The most significant headwind is from the COVID-19 surge caused by the Delta variant, which by the end of July represented 83% of new cases.3 Because the Delta variant causes more infections and is nearly twice as contagious as the previous variant, its dominance has set back what had been reasonable expectations regarding recovery made earlier in the year. 

Health spending is up, while admissions are down

National health spending was 7.7% higher in June of 2021 compared with June of 2020, according to economic indicators reported by Altarum in August, indicating a general recovery from the pandemic.4 Hospital admissions, however, fell in the Spring of 2020 because of the public lockdown, and by December 2020, they reflected only 94% of expected use.

Altarum also reports health spending has continued to grow more slowly than the GDP, resulting in what would normally be regarded as a desirable outcome — a reduction in the percentage of GDP spent on healthcare — which for many groups may still be regarded as desirable. As a result, health spending in August was at 17.4% of GDP, whereas in early 2020, it had been at 18% of GDP. 

The variations in the growth of healthcare spending have also been substantial. Prescription drug spending has increased at the fastest rate since the beginning of 2020, whereas dental care has seen the greatest decline in growth — at -20.2% in 2020, according to Altarum. This decline in spending may not be surprising in that dental care is regarded by many individuals as more discretionary than medical care. In contrast to this perception, poor dentition is a major cause of poor nutrition among seniors and contributes to the estimated 50% of older Americans who are believed to not receive proper nutrition. 

The healthcare price index has also remained steady. From July 2020 to July 2021, the growth was 1.9%, which was the fourth straight month that the price index grew at a rate of less than 2%.5 Healthcare employment — normally an important factor coming out of a recession — added 36,000 jobs in July, hospitals added 18,300 jobs, almost exactly half. The total number of jobs added in July were 943,000, with the largest share coming from leisure and hospitality. To put this growth in perspective, healthcare employment continued to grow during the Great Recession, which occurred between the ends of 2007 and 2009, although at a slower pace than during the 1990-1991 and 2001 recessions. In contrast,1.4 million jobs in healthcare were lost during the coronavirus pandemic. 

Outpatient revenue, which has been an important source of profit for hospitals during the pre-pandemic period, fell 2% in July from the previous month. Because hospital outpatient revenue has long been growing at a faster rate than inpatient revenue — 9% versus 6% from 2011 to 2018 — this slowdown is likely to have a noticeable effect on hospital finances. These numbers also suggest that patients may once again be postponing any healthcare they perceive to be nonurgent. 

Recommendation

All these statistics indicate that various sectors of the economy are recovering from the pandemic-related recession at different rates and continue to experience different levels of stress. This experience, together with the current increase in the effects of the Delta variant, suggest it would be prudent for the HHS Secretary to extend the PHE declaration for an additional 90 days. Whether that move will be sufficient should be clear by the end of the year.