In any economic disaster, the largest, best-financed organizations have a natural advantage over smaller, cash-strapped organizations. The bigger entities have a greater ability to withstand economic downturns, while the small ones can quickly go out of business because they lack the financial reserves needed to tide them over.
In the roughly 2 ½ months since the COVID-19 pandemic began sinking its hooks into America, the pertinence of this business axiom has been amply illustrated. Small companies across the country are desperate to reopen so they can survive, while many large corporations are seeing their stock prices soar. Most healthcare systems are not for profit, so they don’t issue stock; yet bigger hospitals are not suffering as much financially as smaller and rural hospitals are. Even though the large hospitals’ losses from elective surgery bans have been higher, they have much deeper reserves and greater access to bank lines of credit.
Physician practices have been hit disproportionately by the pandemic. Most practices have switched to telemedicine visits as patients have shunned in-person encounters and the offices have tried to protect their staffs. But the revenue from virtual encounters has not come close to making up for the loss of revenues from office visits that, in many cases, include lab tests and/or minor procedures.
The numbers tell the story. A survey by the Medical Group Management Association (MGMA) found that the COVID-19 crisis had had a negative impact on 97% of physician practices. On average, practices reported a 55% decrease in revenue and a 60% decline in patient volume since the beginning of the pandemic.
In April, 1.4 million healthcare jobs were lost after decades of steady employment gains in the sector. Of these lost jobs, 243,000 were in physician offices, representing a 9.2% decline from January. Employment in all ambulatory health care services dropped by 1.18 million jobs, a 15.4% drop from January. In contrast, the number of hospital jobs fell by 134,000, or 2.3%.
Hospital layoffs would have been greater if not for advance payments under the Medicare Accelerated Payment Program. In addition, hospitals need clinicians to fight COVID-19, and many facilities are gearing up to restart elective surgery—their most important revenue generator—as some states relax their prohibitions against nonurgent care.
Nevertheless, many hospitals are furloughing large numbers of staff. For example, Boston Medical Center laid off 700 people, 10% of its workforce, and Trinity Health Michigan furloughed 2,500 staffers. Physicians employed by both health systems and independent group practices have also been furloughed or terminated. According to a recent national physician survey, 18% of respondents who treated COVID patients, and 30% of those who didn’t treat such patients, had been furloughed or had received significant pay cuts.
The COVID crisis has especially hurt independent primary care groups. In most practices, a Modern Healthcare articlenotes, expanded telehealth options haven’t made up for the massive drop in patient volume. The $50 billion provider relief fund authorized by the CARES Act has provided some help, but primary care doctors complain they’re at a disadvantage because the funding allocation is based on net patient revenue, which favors higher-paid specialists. Moreover, in April the Centers for Medicare and Medicaid Services (CMS) suddenly cut off an advance payment program that had been designed to tide over practices in the early months of the pandemic. Some practice owners said they’d have to close or sell their practices unless they received more financial relief.
Effect on consolidation
At this point, we can only speculate on the long-lasting effects of the COVID-19 crisis on healthcare. Numerous observers have pointed out that, whatever happens, healthcare will be changed forever. For example, telehealth will become a much more important part of healthcare delivery than it has been up now, and more care now delivered in hospitals will be provided at home.
There is also speculation about whether or not the consolidation of the healthcare industry will markedly increase in the aftermath of the pandemic. Anecdotally, small primary care practices are increasingly asking health systems to acquire them, Josh Halvorson, a principal with ECG Management Consultants, told me.
“It’s a stress test on those smaller practices. However, there are large single specialty groups that have a strong market presence, and they’re weathering it pretty well,” he said in April.
In contrast, Halee Fischer-Wright, MD, CEO of MGMA, told me that employed physicians “may be at higher risk because they’re a line item on a budget, and that line item has not produced revenue during this time period, because there’s no volume. So they may be at greater risk than independent practices will be. The economies of large systems may not make sense in a small- dollar, high-volume practice. So the pendulum may swing back to more independent practice.”
Whether healthcare delivery becomes more or less consolidated as a result of the pandemic is the key to the future of the system. Among other things, it will help determine whether healthcare will continue to become less affordable or unaffordable for most people. In the past, as healthcare systems scooped up every smaller hospital and practice in sight, health costs rose because payers could not afford to exclude those large, dominant hospital systems. At the same time, big healthcare systems constitute a major obstacle to value-based care, which is diametrically opposed to their business model of filling as many beds and performing as many outpatient services as possible.
Therefore, it seems likely that the relationship between large and small healthcare entities will be a pivotal factor after the pandemic. At least one informed observer, health economist Amitabh Chandra of Harvard, is not optimistic that the COVID crisis will lead to a more decentralized, less costly healthcare system. “I think we’ll go back to business as usual,” he told the New York Times.
I certainly have no crystal ball on this or any other matter. But it’s worth thinking about the alternatives. Ali Khan, MD, former head of the CDC’s pandemic research unit, recently told the New Yorker that the catastrophic initial response of the U.S. to COVID-19 stemmed, not from a lack of money or scientific information, but from a lack of imagination. The same could be said of our subpar approach to healthcare reform.
What if, instead of bankrupt primary care doctors begging hospitals to take them in, they joined larger independent groups that have the wherewithal to survive the pandemic? In 2018, the percentage of physicians in practices of 50 or more physicians was just under 15%. Since this included employed groups, the portion of doctors in large independent groups was even smaller. But there are more than 1,000 accountable care organizations (ACOs), of which 42% are physician-led. Many of these ACOs are based on independent practice associations (IPAs) that could potentially be melded into large groups.
Essentially, what I’m suggesting is the establishment of bigger, stronger physician groups that could collectively form a powerful counterweight to the healthcare systems that now dominate many local markets. Whereas the COVID-19 crisis is now viewed as an economic disaster that is likely to drive further consolidation of the industry, it doesn’t have to be that way. Imaginative business arrangements, tied to the two-sided risk contracts that an increasing number of ACOs hold, could provide physicians with economic security while forestalling the further growth of healthcare systems and the resultant escalation in spending.
Former Chicago Mayor Rahm Emanuel, when he was President Obama’s chief of staff, famously said of the financial crash of 2008, “Never let a crisis go to waste.” He recently said the same thing about the COVID-19 pandemic. Physician leaders would be wise to follow his suggestion.
Ken Terry is a journalist and author who has covered health care for more than 25 years. His latest book, Physician-Led Health Care Reform: A New Approach to Medicare for All, was recently published by the American Association for Physician Leadership.