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Where does our healthcare system go from here? The lasting impact of COVID-19 [PODCAST]

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The Hospital Finance Podcast

In this episode, we are joined by Michael Abrams, Managing Partner of Numerof & Associates, to discuss the effects of COVID-19 on healthcare and its lasting impact.  

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Highlights of this episode include:

  • A review of the multitude of issues in our healthcare system that were exposed as a result of the pandemic.
  • What quickly implemented changes to telehealth and payments will likely become permanent after the pandemic?
  • How providers can better optimize their operations to recover from this round of COVID-19 and prepare for a potential surge.
  • How other countries and their healthcare system were able to weather the storm more effectively than the U.S. 
  • A look forward at how to correct the course in healthcare given the multitude of issues driving delivery and payment.
  • And more…

Mike Passanante: Hi, this is Mike Passanante and welcome back to the award-winning Hospital Finance Podcast®. It goes without saying that COVID-19 has had a dramatic impact on our society and our healthcare system specifically, exposing numerous issues with how we deliver and pay for care. To talk about the effects of COVID-19 on our healthcare system and where we go from here, I’m joined by Michael Abrams, who is co-founder and managing partner of Numerof. Over the last 25 years, Michael has built a portfolio of strategy and business performance successes as an internal and external consultant to fortune 500 corporations. Michael, welcome to the show.

Michael Abrams: Thanks, Michael.

Mike: Michael, there were a multitude of issues with our healthcare system that were exposed as a result of the pandemic. What do you think were the biggest shortcomings?

Michael Abrams: Well, as you say, a number of cracks in the system were revealed and a lot of changes, I think, that were already in process have been accelerated by the pandemic. One of the issues that really became visible during the pandemic was the strategic vulnerability of our pharmaceutical supply’s chain. It became very clear that reliance on other countries, especially China, who were production of critical active pharmaceutical ingredients and products including penicillin and even vitamins was a problem that had been largely unrecognized up until that point. According to, I think, some reports, China was– and I don’t know how quickly that has changed, but China has accounted for roughly 40% of global API production which surpasses India as the largest API exporter. And the Chinese market has been growing at about 14% a year. So in October of last year, the FDA noted that only about 28% of the manufacturing facilities making APIs for all regulated drugs to supply the US market are actually located in this country. So this was certainly a wake up call that our over-reliance on foreign producers, particularly those whose intentions regarding the US might be questionable, was a strategic vulnerability that needed to be addressed. So that was one. Yeah. There are others.

One of them, I guess the second one that I would talk about is that behavioral health has real consequences in costs and needs to be taken seriously. As the pandemic was gathering steam, insurers reported a spike in prescriptions for medications targeted for the treatment of anxiety, depression, and insomnia. And there had been studies out there showing that, at least in some cases, over half of treated adults who survived COVID-19 experienced at least one mental health condition as much as a month or more after hospital treatment. So again, this is a reminder, and this is one of those things that I guess you could say was accelerated or highlighted by COVID-19, that behavioral health is too important to consign it to the periphery of healthcare. 

Certainly a third issue that has arisen during the pandemic has to do with the importance of social determinants of health and population health in general. Throughout the pandemic, those with chronic disease and multiple comorbidities have really bore the brunt of the infections and deaths. And not only has it had a disproportional impact on those populations but the existence of these pockets of people with more serious problems as a result of the pandemic have made the pandemic itself that much more difficult to control.

Had a population health approach been the organizing principal for healthcare across our country, we would have been much better prepared to weather this onslaught. And so we’ve already seen, I think, some acceleration in the intention that is given to the whole issue of addressing both social determinants of health and the treatment of those with comorbidities and chronic disabilities, and I do expect that that will continue. I guess the last one I would bring up, although, certainly there are probably more that I could go on about, is the fact that the fee-for-service model of reimbursement in healthcare that characterizes so much of healthcare delivery across our country carries risks of its own that most provider organizations had been blind to. So during this pandemic, the cut off of the lucrative procedures that most healthcare delivery organizations had relied upon to ensure that their balance sheets stayed healthy, that cut off has done enormous damage to balance sheets of hospitals and hospital systems across the country, damage that may take years to repair. And I guess the interesting aspect of it is that up until now, proposals for healthcare delivery organizations to take accountability for managing the total cost and quality of care were always referred to as going at risk. And I think that the pandemic has shown a light on the fact that the fee-for-service model that most organizations are working on now carries its own kind of risk, one that can be particularly devastating under these kinds of conditions. So those would be a few of the things that have come to life as a result of COVID-19 that I think will resonate and reverberate for some time to come.

Mike: Michael, there were many changes to the healthcare system that were quickly implemented, such as around payments, telehealth, and more. Which changes do you think make sense and should become permanent in some form?

Michael Abrams: Well, I think, and maybe this is going back to your last question about what things have been accelerated or highlighted as a result, certainly one thing that was a pleasant surprise really was the speed with which healthcare delivery organizations adopted telehealth technology. We had been interviewing executives across the country in a research project of our own to look at not only what has happened during the pandemic with regard to telehealth but what executives across the country expect will happen. And the pleasant surprise is, again, the rapid pace with which healthcare organizations have disseminated telehealth technology. Now true, it helps that it has come a long way, that the technology is eminently available and, in most cases, not crushingly expensive. That being said, the healthcare delivery community does not have a strong reputation for rapidly adopting new technology. And so what this has proven certainly to me, and it seems to be fairly obvious, is that old song that – what is it? – necessity is the mother of invention. When telehealth is the only path to revenue, it is shocking how quickly it gets adopted even in sectors like healthcare delivery.

But to go back to your question about changes that have been made, telehealth is a great example of changes that needed to be made that were accelerated by COVID-19. Regulations that constrain virtual visits across state lines, that regulated a level of personal physician oversight that was required to authorize certain kinds of orders and requirements for HIPAA compliance and the choice of telemedicine software were all waved in order to encourage adoption of the technology. It doesn’t hurt either that steps were taken both by CMS and by commercial insurers to increase the level of reimbursement that was provided for telehealth visits. Although, one might say that in the absence of any other option, telehealth still was the best-looking option available. So that was perhaps one of the more important aspects or changes that was made. And while that reimbursement level is less than an office visit, it made worth the effort to file the paperwork that was needed to get reimbursed for those telehealth visits. So most of these changes made sense at the time and should be retained on a go forward basis. Telehealth has proven to many patients and clinicians that it has a legitimate place in the portfolio of services that are being offered in healthcare delivery. And if its reimbursement is maintained at a reasonable level, its expanded use will very likely, in many places across the country, become permanent.

That would be, I think, a plus for many patients who don’t see a compelling reason to spend hours on end, perhaps having to take time off from work in order to get in the car, take themselves to a physician office, wait in the waiting room for some indeterminate period of time sitting next to people who have God knows what, and all to spend perhaps 10 minutes talking to their physician. So early on, the administration waved fees– and this is separate from telehealth now. Early on, the administration waved fees for testing, vaccination when it becomes available, and treatment for COVID which made sense as a way of eliminating barriers to access. And I’m sure these will be retained to encourage people to take responsible steps to manage their exposure to infection. So I think these are some examples of the kinds of changes that have been accelerated. And again, this is not restricted just to the pandemic. This administration had focused very squarely on trying to make healthcare delivery more market responsive and had taken many other steps prior to the pandemic to ensure that healthcare, let’s say, pricing was more transparent to consumers and that continued. So that’s the broader context but I think the pandemic has done quite a bit to accelerate the need for that. And has shown that it can make an important difference.

Mike: Michael, at least in the short-term future, there’s a chance that COVID could surge again at some point. How can providers better optimize their operations to help them recover from this round and prepare for a potential surge if and when that were to happen?

Michael Abrams: Well, I think there are probably two parts to the answer there. One part of that is very basic and that is ensure that providers have adequate supplies of PPE so that, should there be a surge in patient activity, that at least they have adequate protection for their staffs and don’t have to worry about that aspect of contagion. But the part of it that is very much more difficult to deal with goes back to the problem with fee-for-service. One would hope that we won’t have to resort to various levels of shut down and the elimination of elective surgeries across the countries once again. But as long as that is a threat, that is a threat to the bottom line for most hospitals that are still working on a fee-for-service basis. And I think one of the most important things that healthcare delivery organizations can do is to start thinking more seriously about diversifying their revenue stream to include at least a bigger component that is capitated work that would not be so dramatically impacted if there were another restriction on elective surgeries. Numerof does an annual survey of the penetration of population health approaches in hospitals across the country. We just released the fifth year of our data set regarding what we have seen from our ongoing study and what it shows is that although the concept of value-based care, the concept of population health gets lip service from the healthcare community, that the actual commitment to taking on contracts that require that healthcare providers are accountable for the management of cost and quality, that’s minimal. It hasn’t changed in five years. And more than that, the infrastructure that would be required for healthcare institutions to adequately manage the cost and the quality of the care that’s delivered is still under-developed and needs more work. But I guess I would say that if healthcare organizations are going to prepare both in the near term and the longer term for a repeat of what we have seen in the COVID-19 experience, they need to diversify their revenue stream so that they’re not so much dependent upon elective surgeries to keep their balance sheets intact.

Mike: So we’ve read about the approaches that many other countries have taken with regard to the pandemic. Are there other countries that you can point to and say that their healthcare system was able to weather the storm more effectively than ours?

Michael Abrams: Well, in many ways, comparing the handling of COVID in the US to that of pretty much any other country is difficult and, at some level, unfair because the US is different from almost every other country in its size, its political system, the structure of its healthcare system, its culture, and the way in which public health decisions get made. So many other countries have characteristics that have advantage then under the circumstances. Some have authoritarian political structures, centrally managed healthcare delivery systems, smaller and more homogeneous geographies and populations that are more used to being compliant with constraints that are placed on their individual freedoms or threats to their privacy by authorities. So several Asian countries also had learned quite a bit about managing a public health emergency from the SARS epidemic. Now all that being said, there are countries that have had greater success in rapidly managing the fall out of the pandemic than the US. Taiwan in certainly one of those. Rather than shuttering its economy for weeks on end in an attempt to slow the virus, Taiwan went in a different direction. They very quickly closed their borders, they banned exports of PPE, and the government used very aggressive contact tracing and mobile tracking to identify and ensure that those in quarantine were actually abiding by the rules. Taiwan has a single payer healthcare system. Medical officials held briefings for the public daily and businesses were kept open by using very aggressive precautionary measures like taking temperatures, providing sanitizer before patients could enter business establishments. Taiwan has had roughly 488 cases and approximately 7 deaths. So that certainly sounds like a big improvement over our results. But again, there are a lot of differences between Taiwan and the US.

Singapore is another example with 56,000 cases and 27 deaths. They also look like a stand-out. They took a very aggressive approach to contact tracing which included scanning IDs at supermarkets and widespread testing. The government built temporary bed spaces in rapid time to house COVID-19 patients, keeping the causally rate unusually low. Now Singapore is one of those countries that was advantaged by its previous lessons learned from the SARS epidemic. Also its small size and centralized approach was not just to healthcare crisis but to other aspects of policy that has characterized Singapore itself. I’ll mention one other country that is a bit of a stand-out that’s New Zealand. 1,700 cases, 22 deaths. They moved very quickly to shut down the country, less than 3 weeks from their first case. They shut their borders to outside travelers and a week later had not only shut down non-essential businesses but went even further with a level four lockdown which meant that people could only interact with people within their home in an attempt to eliminate the virus altogether. Plainly, these are things that made demands upon a population that the population of the US is both not prepared to make and, given the size and the very dramatic cultural differences across this country, certainly you couldn’t characterize the entire country as being homogeneous enough to enact any of these policies in a large scale way. 

So some of the common themes, countries that responded earlier and aggressively tended to have better responses very clear. It helps to be an island nation that’s off the beaten track and it helps to have either a centrally managed political and healthcare structure or a collaborative political structure that is willing and able to work together. All of those are not exactly characteristics that the US can claim. There are other players that have done well. Australia and Canada, Iceland. Not every other country in the world has made us look so bad, though. Italy has a centrally driven healthcare delivery establishment but is different from ours in that it is not as decentralized as the healthcare establishment in the US. They don’t have the out-patient clinics. They don’t have decentralized places where people can go to be seen by a physician. What they do have and what their population is used to is going to hospital. And as a consequence, when COVID-19 came roaring through, everyone surged to the hospital and their hospitals were overwhelmed, and that became the nightmare that drove a lot of activity in this country to ensure that the same thing didn’t happen. I do think that one of the advantages that we have is a more centralized healthcare delivery structure. In any case, the US comes with its own set of characteristics. Not all of them have helped us through this pandemic. I do hope that the learnings that we take away won’t be lost because I think there’s a strong possibility that it won’t be another 100 years before we have another pandemic to deal with.

Mike: So we covered a lot of ground here today, Michael. Looking forward, how do we start correcting the course of the problems we have in the healthcare system given the multitude of issues driving delivery and payment?

Michael Abrams: Michael, at an accurate level, the problem with our healthcare system can be characterized fairly simply. That as a nation, we’re spending more than twice per capita what any other developed economy spends. And yet, comparison against most generally accepted outcome measures shows that the US’s outcomes are mediocre at best. At a deeper level, the thread that underlies the failure to achieve results commensurate with cost is then at the delivery level where most of the decisions about the use of resources are made. The compensation of providers in healthcare delivery organizations is unrelated to the outcomes that they achieve from the care they give. So Numerof has been an advocate for market and value-based reimbursement across healthcare for many years. This translates to reforming the delivery system to ensure that consumers know in advance the cost of the care that they’re going to receive, that providers at the individual and the organizational level are paid in a way that’s related to the outcomes that matter to patients, to the quality of those outcomes and to the cost effective utilization of resources in the delivery of care. The fundamental reason that the penetration of market-based and value-based reimbursement across healthcare delivery has moved at such a snails pace is because healthcare providers know what they have in fee-for-service. They have 30 years of experience with it and believe that it works for them. And it has at least in the past. Conversely, they have very little experience with payment schemes in which they take responsibility for managing against cost and quality targets and they see threat in that approach.

So you ask how do we start correcting the course of the healthcare system. Well, CMS is the only stakeholder in the picture with the market power to drive change in the way that reimbursement is structured and how much transparency is required of providers. CMS has been trying for 30 years to move the system in the direction of a market-based and value-based approach mainly with pilot programs and projects that offer financial rewards and penalties for reshaping certain aspects of delivery. So that examples would be bundle pricing, the institution of never events, even DRGs going back to the ’80s have all been attempts to bring the cost of care under control and bring some accountability to the efficient use of resources. So in answer to your question, Michael, I don’t see what’s going to make a meaningful difference with all of the challenges that we have in our healthcare system until and unless we move the payment system more in the direction of accountability for cost, quality, and for outcomes that matter to patients. And CMS is the sole stakeholder with the market clout to drive that forward in a meaningful way. I’m looking to CMS to continue the efforts that they’ve made. But hopefully, whether it’s this administration or some other one, to retch it up the pace of that change. Because at the rate we’re moving, we will go broke before we’re able to meaningfully change the cost and quality of care in this country.

Mike: Michael, if someone wanted to learn more about what you do at Numerof, where can they go?

Michael Abrams: I’d check out our website. Numerofconsulting.com.

Mike: Excellent. Well, thank you so much for coming by the podcast again today and sharing your insights on how we move the healthcare system forward after this pandemic.

Michael Abrams: You’re welcome, Michael. Thanks for inviting me.


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