Hospitals and health systems that have health plans or value-based care arrangements to cushion the financial fallout from COVID-19 will be better positioned moving into the next year, a new analysis from PwC found.
The analysis, released Wednesday, looks at major trends in the healthcare industry. It pinpoints how providers are in for an uneven recovery next year from the COVID-19 pandemic, which caused patient volumes to plummet back in March and April.
“Health systems that own a health insurer were able to provide a financial cushion to support clinical operations,” the PwC report said.
PwC pointed to major health systems such as Intermountain, Kaiser Permanente and Presbyterian Healthcare Services that used health plans to help bolster their finances.
Systems that also invested heavily in value-based arrangements and digital initiatives also have fared better.
“Hospitals and health systems that have mostly recovered from the initial hit of the pandemic had invested before the crisis in areas such as hospital-at-home services and digital capabilities that allowed rapid expansion into virtual care and remote patient management,” the report said.
Virtual care has exploded during the pandemic as patients were reticent to head to the doctor's office and the Trump administration gave more flexibility for providers to get Medicare reimbursement for telehealth.
Patient volumes started to rebound for health systems after shelter-in-place orders lifted in May and June, but some systems are still struggling financially as volumes have not reached their pre-pandemic levels.
Struggling providers likely will need to turn to deals to survive, but first they should consider a regional partnership rather than a full acquisition, the analysis said.
“This could mean partnering with a larger health system to drive more volume, or a value-based care arrangement with a payer to start diversifying revenue,” PwC said.
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The report gave an example of nursing homes that have been slammed by the pandemic.
“Long-term care facilities may look to diversify into home health, which fared better during the pandemic, or to partner or sell to a health system or private equity firm investing in long-term care,” PwC said.
Payers flush with cash
Payers, on the other hand, will have more capital on hand next year as the pandemic caused healthcare use to plummet and claims to precipitously drop.
Most states call for an insurer to have an average risk-based capital ratio of at least 200%, meaning the minimum amount of capital needed for an insurer to maintain its operations. However, a PwC analysis found that in the second quarter of the year nearly a quarter of health insurers had a ratio of 800% or higher.
“The average risk-based capital ratio for the sector grew from 616% in 2019 to 690% in the second quarter of 2020,” the analysis said.
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The excess of capital could generate risks if insurers don’t reinvest it as state regulators could force plans to return money to members, PwC said.
“Insurers that do not invest in virtual care, in care providers and in consumer-focused capabilities and outreach could face higher claims costs due to worsening health outcomes from deferred care during the pandemic,” the analysis said.
The most popular path of reinvestment could be digital tools to enhance the customer experience.
“Nearly 50% of payer executives surveyed by [PwC’s Health Research Institute] said their organization is investing in digital product support and educational tools such as mobile apps to improve the member experience,” the report said.