Knowledge. Shared Blog

April 2020

COVID-19: Understanding the Science & Investment Implications (Part III)

In the third installment of our video series on the scientific and investment implications of COVID-19, Health Care Analyst Rich Carney discusses how the health care system has responded to the crisis, how federal and private funding has factored into that response, and why certain emerging trends in the sector, such as telemedicine, will likely accelerate post-pandemic.

Key Takeaways

  • The Federal government has provided much-needed emergency funding to hospitals through the CARES Act to relieve some of the strain on the health care system in the U.S.
  • Trends that were already gaining a foothold before the COVID-19 pandemic – particularly telemedicine – will likely see broader usage and continued innovation after we emerge from the crisis.
  • With the costs to fund a Medicare For All program estimated at $30 trillion over a 10-year period, a universal health care solution is likely on the backburner for now, considering the $2 trillion being allocated for COVID-19 relief. However, key provisions of the Affordable Care Act could greatly reduce the number of uninsured, despite high levels of unemployment.

View Transcript

Michael McNurney: Hi, this is Mike McNurney from Janus Henderson. Today in the third part of our series on the COVID crisis, we are going to discuss how the health care system has responded to the COVID crisis and how hospitals and providers in general are capable of responding based on the assistance that they’re receiving, both from the federal government and from the private insurers.

Joining me today is Rich Carney, the Health Care Analyst that focuses on the services component of health care. Rich, thank you very much for joining us today.

Rich Carney: Thanks, Michael.

McNurney: You know, I think the first thing that is important, we know there was about $100 billion set aside as a part of the CARES Act that was associated with this COVID crisis, set aside for hospitals to help keep them liquid through this transition. We also know that some of the Medicare payments have been able to be pulled forward, which are allowing these hospitals to focus on the health care component of this crisis as opposed to the financial ramifications of this crisis. Can you talk a little bit about how the government has responded and how the private insurers have been able to assist these providers?

Carney: Yes, absolutely, Mike. Yeah, to summarize, what we have seen since the COVID crisis surfaced is a very quick response from the government to get much-needed funds to the hospital system. As you know, starting in late March, nationwide, all elective procedures were shut down in the hospital system, and these are some of the most profitable business lines for hospitals. In addition, you had societies like the American Dental Association saying, “No non-emergency procedures,” and as a result, we have seen just unprecedented volume declines in parts of the health care system that are normally considered very stable. So, for example, we know now in April that inpatient and outpatient surgeries in hospitals are down 50% to 70%. We are even seeing surveys from dentists seeing revenues down 90%. This has put a big strain on the hospitals. And so, as a response to this, in the first tranche of the CARES Act, $100 billion was appropriated toward or granted to hospitals for funding.

Now, I will say, in addition to the grant money that came forward, as you mentioned, the Center for Medicaid and Medicare Services fast-forwarded about $30 billion of payment of revenues that would have been received but will ultimately need to be paid back, which has also helped for cash needs. And we are seeing an amazing partnership between the payers – the managed care companies like UnitedHealthcare, Humana and CIGNA – fast forward some payments, insurance claim payments to health care providers in addition to help them with some of their cash needs. So overall the system looks like it is on good footing and will be prepared to open, and that is a good thing.

McNurney: Thanks, Rich. As you talked about that, it occurs to me that the way that we are having to practice medicine is probably going to change as a result of the COVID crisis. So, can you talk to me a little bit about the longer-term structural changes that you think will be a result of this crisis?

Carney: Yeah, Michael. There are two things I will mention. First, there was some areas where trends, emerging growth trends were happening, and I think those are going to likely accelerate. The foremost example of that is telehealth, telemedicine. The second is, there have been some problems in the system as a result of COVID. There are potential worries about pharmaceutical supply chains, access to raw ingredients to make pharmaceuticals, and also for key supplies like masks, ventilators and parts that go into that.

McNurney: You know, I think it is interesting that you mentioned telemedicine. One of my sons yesterday had a dermatology appointment via telemedicine. And I have to tell you, from my standpoint, being able to have him seen without going to the doctor’s office, obviously for safety concerns, is great. But also, for convenience, it was terrific, so if that is an option for me going forward, I am sure I will do it. Is it convenient and effective for the doctors as well?

Carney: That is a great question. Telemedicine was already, the train has already left the station. Over 100 million people in America already have access to a telemedicine platform through their employer, their health plan. And what we saw through the crisis is in some cases over 100% growth in just, month over month from April to February, as a result of people not being able to access physical locations. We saw it used broadly: dermatology, telepsychiatry, in addition to some of the acute cough and cold usages that it normally sees. Now, not all that usage is going to stick, but in a survey, a recent survey, we saw that at least 70% of people are likely to try it again, use it again. And so, I do think we will see more usage of it, and it is better for the system because patients find it is more convenient, it is cheaper. It is just as good for the providers, it allows them to free up time and they can triage patients in a more effective manner. And also, for the system, it is just less costly. So I think telemedicine is definitely here to stay.

McNurney: Now one of the other things you talked about is supply chain issues that maybe this crisis has shined the light on a little bit. How do you think the health care system responds to those issues that have been identified?

Carney: Yeah, I think it is two things. I think we are going to have a closer look at where we source raw ingredients for supplies. I think healthcare IT, health care information technology, is going to play a big part in this. We have to better look at the supply chain, we have to understand where the weaknesses are, and I think you are going to see increased spending by hospitals and providers on health care IT going forward.

McNurney: Rich, as we headed into 2020, I think we expected a lot of volatility within the health care sector, but I think we expected that volatility to be a consequence of the political rhetoric that was going to be a part of the run-up to the 2020 election. What do you think about the likelihood of a single-payer system like Medicare For All that was discussed late last year by Bernie Sanders and Elizabeth Warren? What do you think about drug price reform? Are these going to continue to be big topics even once we get past the COVID crisis?

Carney: Another great question, Michael. I think the debate pre-COVID to today has definitely changed. You know, as you recall last summer and fall with Elizabeth Warren and Bernie Sanders being the lead candidates, a key tenet of their platform was universal health care and Medicare For All. At that time, there were estimates that a Medicare For All program would cost $30 trillion over a 10-year period. With $2 trillion having been raised for the CARES Act and the impact on the deficit, I would think that is severely on the backburner for the time being.

Secondarily, we have had, post the Affordable Care Act in 2012, two key expansions in the program. One was expansion of Medicaid and then one was the creation of the individual exchanges. Those are two programs that will act as safety nets now, where we didn’t have those in ’08 and ’09. So, I think it is very likely that on the other side of this, despite the record numbers of unemployment that we are seeing, the rate of uninsured is probably going to be much, much less. And that is a great thing, because people are worried about their financial security and at least they don’t have to worry as much about their health security.

On the affordability debate, that is always going to be a debate. But what I would say is the health care system has done pretty well here in the COVID crisis. You know, we have seen the pharmaceutical companies rush to look for therapeutics and vaccines, and the insurance companies forego payments and waive fees for consumers, we have seen the rise in telemedicine, which has been great. And we have seen the hospital system respond in just unprecedented ways and those have really been our heroes during this whole situation. So, I think that the role of innovation is the most important thing going forward and the private sector has looked very, has done very well throughout this crisis.

McNurney: Rich, thank you very much for spending the time with us today in our ongoing series on the COVID crisis.

Carney: Thank you, Michael, appreciate it.

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