By Tamyra Porter, Hanford Lin
To address the unprecedented impact of the COVID-19 pandemic, roughly $200 billion in federal funds were authorized through multiple laws, administrative orders, and government agencies.1
Much of the money that has been allocated over the past three years to states, hospitals, health systems, and other providers is being gradually reduced or eliminated entirely. Specific timetables are dictated by original expiration dates, passage of the 2023 Omnibus Appropriations Bill, and the subsequent announcement to end the public health emergency (PHE) on May 11, 2023.2
In addition to the funding allocations, the Centers for Medicare & Medicaid Services (CMS) temporarily authorized significant changes to payment models, medical assistance eligibility determination rules, regulatory requirements, and operational/staffing needs. As these temporary waivers are lifted, the effects will be far-reaching across the healthcare ecosystem, impacting states, patients, healthcare providers, Medicaid agencies, hospitals, home- and community-based services providers, skilled nursing facilities (SNFs), individuals without commercial health insurance, and more. According to CMS, this will be the single largest health coverage transition since the first Marketplace open enrollment period began nearly 10 years ago.
The healthcare ecosystem was fragile before the pandemic hit. Losing these supplemental funds, which were temporarily propping up a challenging model, may threaten the sustainability of the healthcare ecosystem.
With the expected impact of the PHE unwinding on the healthcare ecosystem, it’s critically important to be proactive in preparing your organization for upcoming changes. While the details can be somewhat of a moving target, with the possibility for last-minute changes, that shouldn’t stop leaders from preparing and acting now.
The expected impact on individual state health programs is multi-pronged and varies based on a program’s pre-pandemic performance and financial health.
Much of the regulatory flexibility and supplemental funding afforded to states was directly tied to pandemic-related needs such as COVID-19 testing and treatment, telehealth appointments, and additional benefits. Thus, as these provisions are lifted, state health programs that were struggling before the pandemic will likely be right back to where they were without that funding and regulatory support.
From a regulatory perspective, each state will need to meet CMS’s expectations regarding eligibility re-determinations expanded outreach, and new reporting requirements quickly—all against a likely backdrop of administrative challenges, staffing shortages, and outdated technology.
Moreover, a Guidehouse analysis identified approximately $78 billion in aggregate state savings from January 2020 to March 2022 resulting from Federal Medical Assistance Percentage (FMAP) increases. FMAP savings helped reduce the harmful impact of the pandemic on our nation’s most vulnerable—but in many cases, states had to spend money to realize those savings and Medicaid redetermination will likely result in enrollment decreases that could prevent people from accessing essential healthcare services.
Worst-case scenario? Without proper planning, the unwinding tips the scales and exerts even more pressure on states’ healthcare ecosystems—resulting in more uninsured individuals, coupled with even less money available to address complex, evolving demands. States will need to determine how they can use existing waivers and/or demonstration projects within CMS to maintain healthcare access, benefits, and high-quality care for Medicaid beneficiaries and other stakeholders.
To illustrate these challenges, we forecasted the potential impact on one state that’s been tracking expected eligibility changes on its medical assistance populations, related to the PHE unwinding. Using actual claims data, we discovered two key findings that Medicaid agencies, and Medicaid managed care organizations (MCOs), should consider.
First, we found that how quickly states begin and can complete redeterminations will significantly impact their budgets and will also affect monthly capitation rates. Our analysis identified a one-month delay of redetermination resulted in an approximately 1% increase in state expenditures.
Second, the related Medicaid disenrollment is likely to impact per member per month (PMPM) claims rates and expenditures within service categories. Our analysis showed adult PMPMs increased by 6% after removing claims and enrollment for adults anticipated to disenroll, but a much smaller impact for children (1% PMPM). It noted that Medicaid members who stay on have significantly different utilization patterns within some service categories. For example, on a PMPM basis, Medicaid members who stay on have 35% higher behavioral health costs compared to members who disenroll.
According to the American Hospital Association (AHA), the PHE unwinding will bring major changes in payments related to COVID-19 services and how expansion sites can be used (except for programs that were extended, such as telehealth).4 In addition, hospitals can expect the return of previously waived regulatory requirements, and administrative reporting to retain supplemental payment streams—all while hospitals are facing operating pressure and staffing shortages.
Our analysts note that hospitals, health systems, and providers should be concerned about:
While much of this may seem daunting, there is some good news to report. Included in the 2023 Omnibus Appropriations Bill were reductions in negotiated physician fee cuts (from 4.5% to 2% for 2023 and to about 3% for 2024); a one-year delay for lab test payment reductions; a two-year extension for critical rural Medicare programs; continued telehealth flexibility; and extended provisions for the CMS Acute Hospital Care at Home program.7
The legislation also created a new rural emergency hospital (REH) designation, which will give rural hospitals most at risk of closing the option to change their service delivery, eliminate inpatient care, and receive an additional facility payment each month to ensure emergency services remain available to the many rural populations who need them.8(Note: the REH model comes with significant requirements and restrictions, so it may not be viable for some rural hospitals and is no panacea to maintaining solvency.)
The AHA is lobbying government agencies and Congress to permanently authorize some of the temporary pandemic-related policies that provided needed resources, better access to care, and delivery efficiencies.9 And the American Medical Association is calling for efforts to sustain access to care for Medicaid patients, streamline processes, invest in outreach and enrollment assistance, and support health insurance auto-enrollment (with safeguards).10
Aware of the complexity involved with the changes coming, CMS has been holding monthly calls with stakeholders and providing overall guidance. Its provider-specific fact sheets indicate which waivers and flexibilities have already expired, have been made permanent, or will sunset when the PHE ends.11
As stakeholders explore options and learn what they can do to set themselves up for success, their strategies should focus on some essential considerations.
States should be:
Hospitals, health systems, and other providers should be:
Healthcare leaders across all affected stakeholder communities need to be thinking ahead and doing as much as they can right now—with as much guidance and support as possible—to prepare for changing financial circumstances, workforce levels, healthcare delivery methods, and public outreach efforts.
Because the post-pandemic financial picture is highly unlikely to look anything like the pre-pandemic paradigm, proactive efforts to drive resiliency amid another industry evolution should be everyone’s goal now.
Co-authored by Tamyra Porter, Hanford Lin, and Traci Vitek.
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