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Our Take: Financial impact of pandemic threatens hospitals; other COVID-19 developments

Apr 05, 2020
The CARES Act and its $2 trillion in funding will help
The recently passed and signed Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2 trillion stimulus package intended to buoy the economy and alleviate the financial straits of individuals and hard-hit industries, will provide assistance to the country’s besieged health care system.

Of that $2 trillion, $100 billion is being added to the HHS’ Public Health and Social Services Emergency Fund to reimburse hospitals and health care networks for COVID-10-related costs and lost revenue (e.g., from canceled elective procedures and declines in outpatient volume).

Additionally, the bill includes a 20% increase in Medicare reimbursement rates for COVID-19 hospitalizations, $1.3 billion for community health centers, and $16 billion for the national stockpile of emergency medical supplies.

It also postpones reductions in Medicaid disproportionate share hospital payments, suspends the 2% Medicare sequestration from May 1 through the end of the year, and expands Medicare coverage for telehealth.

A key provision of the CARES Act is the expansion of the Medicare’s Accelerated and Advance Payment Program. Most providers and suppliers will be able to request up to 100% of the Medicare payment amount for a three-month period, with some hospitals being able to request 100% of the payment amount for a six-month period. Critical access hospitals can request up to 125% of the payment amount for a six-month period.

It’s not clear yet how the CARES Act funding will be distributed.

An analysis by Strata Decision Technology projects that even with the 20% increase in Medicare reimbursement rates, hospitals could lose, on average, an estimated $1,200, per COVID-19 case. To help offset those losses, the American Hospital Association sent a letter to HHS Tuesday suggesting that all U.S. hospitals immediately receive $25,000 per bed and those in “hot spots” receive $30,000 per bed.

Hospitals could receive billions of dollars, but will it be enough?
Total costs for hospitalized patients with COVID-19 could reach $1.45 trillion in charges and $558 billion in estimated allowed amounts, a recent analysis by Fair Health found. Those figures are based on a total average charge of $73,300 per patient who requires an inpatient stay, and a total average estimated allowed amount of $38,221 per commercially insured patient.

A separate analysis by the National Association of Accountable Care Organizations (NAACOS) suggested that the pandemic could increase Medicare spending in the year ahead anywhere from $38.5 billion to $115.4 billion. COVID-19-related costs for Medicare ACO beneficiaries could range from $7.7 billion to $23.1 billion, representing a spending increase of 6% to 18% — which could “wipe out shared savings for the current performance year and create major losses for ACOs in models with downside risk,” the authors of the report noted.

“We are just on the tip of the iceberg of a global, public health pandemic that is out of ACOs’ control. We could see generated savings wiped out, massive penalties, and worst of all, ACOs dropping out of the program to avoid losses,” said Clif Gaus, president of NAACOS. “In short, COVID-19 threatens to derail adoption of alternative payment models and the movement to value-based care. We need policymakers to give assurance to ACOs that they’ll take appropriate steps to provide needed protection.”

Health systems lay off staff, contracted providers
Many of the country’s larger health systems have begun to address the financial impact of the coronavirus by reducing nonclinical staff, at least temporarily, and/or redeploying employees to more critical areas.

For instance, in Michigan, Trinity Health’s Mercy Health and Saint Joseph Mercy Health System are furloughing 2,500 employees, or about 10% of their staff, at eight hospitals throughout the state, MLIve.com reported. The health systems are also reducing executive leaders’ pay by up to 25%.

Cincinnati-based Bon Secours Mercy Health is furloughing approximately 700 full-time employees in seven states, and Tenet is furloughing about 500 workers. Appalachian Regional Healthcare, which operates 13 hospitals in eastern Kentucky and southern West Virginia, also will lay off about 500 employees.

When The Salt Lake Tribune reported last week that Intermountain Healthcare would cut pay for physicians, nurse practitioners, and physician assistants during the COVID-19 outbreak, CEO Dr. Marc Harrison clarified the matter. According to the Deseret News, he said there could be pay adjustments in June for up to a third of providers who are on volume-based contracts, but they would be given the option to be redeployed to other areas. Salaried physicians and advanced clinicians would not be affected, he said.

Meanwhile, smaller hospitals, facilities in rural areas, and independent primary care practices are scrambling to stay afloat.

Leaders give up their pay
To help offset their organization’s financial outlays and bolster employee assistance funds, the CEOs and senior executives of several health systems across the country — including Ballad Health, Beth Israel Lahey Health, Cape Cod Healthcare, HCA Healthcare, Mount Sinai, Shore Medical Center, and TriHealth — are taking a personal financial hit. Some said they would forgo or donate some or all of their salary for the next one to three months, whereas others are taking pay cuts of 20% to 50% for an indefinite period.

Merck, Pfizer, Eli Lilly announce medical service volunteer programs
The three pharmaceutical giants announced that they are creating new programs or expanding those they already have so that thousands of their employed medical professionals can more freely assist in the fight against the coronavirus. The programs support employees who want to volunteer their medical services to assist afflicted communities. Lilly is also deploying medical professionals to staff a free drive-through testing facility at the company’s Indianapolis headquarters.

Pfizer and Mylan have postponed their Viatris merger
Delays in the regulatory review process and other disruptions caused by the pandemic mean the merger between Mylan and Pfizer’s Upjohn generics division is now likely to be finalized in the second half of this year, the companies said in a press statement. Terms of the deal are not expected to change.

What else you need to know
Fresenius Medical Care North America is partnering with DaVita and other kidney care organizations to create a network of dialysis clinics that will focus on serving patients who are or might be infected with the coronavirus. The goal of the collaboration, Fresenius said in a news release, is to create “isolation cohort capacity that can be accessed by other dialysis providers” and keep patients with COVID-19 who require dialysis out of the hospital whenever possible. “We are committed to doing whatever we can to keep our care teams, patients, and physicians safe,” said Bill Valle, Fresenius’ CEO. Patients on dialysis are particularly vulnerable during the pandemic, as they are immunocompromised and typically have other chronic conditions that increase their risk, but cannot self-quarantine.

Geisinger and AtlantiCare are severing their relationship, the organizations announced Tuesday, but they will continue to collaborate on joint projects and initiatives. Geisinger acquired AtlantiCare in 2015, but for undisclosed reasons AtlantiCare’s board of directors voted last September to separate from Geisinger. Then, in January, Geisinger filed a federal lawsuit to prevent AtlantiCare from leaving; the lawsuit has been withdrawn. The organizations said it could take six to 18 months to finalize the separation.

A federal judge ruled that key patents for Amarin’s Vascepa (icosapent ethyl), a heart drug derived from fish oil, were invalid. The ruling caused the company’s shares to drop more than 70% in after-hours trading last Monday. Amarin’s CEO, John Thero, said the company would “vigorously pursue all remedies,” including a preliminary injunction pending appeal, to prevent the launch of generic versions of Vascepa in the U.S.

Separately, clinical trial results presented at the American College of Cardiology scientific sessions last Monday showed that, compared with patients who received placebo, patients who received a daily 4 g dose of Vascepa experienced a 386% increase in blood levels of the omega-3 fatty acid EPA, along with a 25% decrease in the risk for cardiovascular events, FiercePharma reported. Among the patients with the highest blood serum levels of EPA, there was a significant reduction in hospitalizations for new heart failure, as well as reduced risk for sudden cardiac death and myocardial infarction, compared with the control group.

The FDA will not penalize Novartis for data violations associated with the highly publicized approval of Zolgensma, a gene therapy for patients with spinal muscular atrophy. Soon after the therapy was approved last year, news broke that Novartis’ AveXis unit had altered preclinical testing data provided in the Biologics License Application. It then came to light that Novartis learned of the data manipulation after the application had been filed but waited to inform the FDA until after the therapy was approved. The FDA threatened to pursue civil or criminal penalties, but BioPharma Dive reported last Monday that the agency has instead classified its inspection review as Voluntary Action Indicated, meaning that the violations it found did not warrant regulatory action.

Bristol Myers Squibb’s oral multiple sclerosis drug, Zeposia (ozanimod), has been approved for adults with relapsing forms of the disease, but the company is delaying the launch of the drug because of the pandemic. Zeposia, a sphingosine-1-phosphate (S1P) receptor modulator, was one of Celgene’s most promising pipeline therapies and part of the reason BMS was willing to pay $74 billion to acquire Celgene. BMS said Zeposia is the only drug in its class that does not require genetic testing before patients initiate treatment or “label-based” observation after the first dose. The company expects annual sales of the drug to peak at $5 billion, according to FiercePharma.

The FDA has asked for all ranitidine products to be pulled from the market and is advising consumers to discard over-the-counter formulas of the heartburn drug, commonly sold under the brand name Zantac. Those taking prescription ranitidine should consult their physician. The FDA issued a press release last Wednesday asking manufacturers to withdraw prescription and OTC versions of the drug because of a possible contaminant, N-nitrosodimethylamine (NDMA).

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