The annual healthcare budgeting process begins with forecasting future patient volumes, case mix, and revenue. The model baseline is the current year metrics combined with a track record of many years of forecasting. The stakes are high, as preparing for a five percent growth and only realizing two percent increase can results in millions of dollars of losses.

On February 26, the novel coronavirus began infecting these budgeting forecasting models. The CDC announced the first community spread and fifteen known cases of Covid-19 in the United States. On March 11, the U.S. had 1,100 known Covid-19 cases and the National Basketball Association postponed their season after a player tested positive. Within a few days, universities and schools were closed, and other sports including March Madness was canceled. Within a week, stay at home orders were in place in most of the country. Soon after, state and federal officials called for postponing all non-Covid-19 related surgeries and procedures to free up healthcare resources to prepare for the pandemic surge.

The pandemic forced healthcare systems to the epidemic frontlines. Hospitals scrambled to protect their staff, add ICU beds, secure PPE, take care of Covid-19 and non-Covid-19 patients, shift to virtual visits and reassign staff. The infected traditional budgeting forecasting models were now destroyed. Healthcare leaders were forced to make entirely new forecasts that could determine their future financial viability.

In April, 1.4 million healthcare jobs disappeared. By mid-May, 94 million adults delayed medical care because of the coronavirus and some 66 million people of those didn’t get the non-Covid-19 related care they needed. All the while, healthcare systems had to make predictions as to patient volumes, staffing, and expenses. Covid-19 has taught us all what statistician George Box observed, “All models are wrong, but some are useful.”

Unless healthcare leaders had experience as computational biologists, meteorologists or hedge fund quants, they had to become super forecasters in this age of uncertainty. The pandemic forced healthcare leaders into making unfamiliar forecasts such as Covid-19 spikes, people’s Covid-19-related behaviors, government responses, vaccine or herd immunity timelines, economic downturns, and virtual care reimbursements. These new forecasts became the foundations for most of the more traditional forecasts.

University of Pennsylvania Professor Philip Tetlock illustrates the difficulty in forecasting in a 2005 study that showed even experts’ predictions are only slightly better than chance. He also found some experts who have real foresight and has spent his career trying to figure out why. In Super Forecasting: The Art and Science of Predicting, Tetlock describes how he assembled a team of ordinary people to win a government-funded forecasting tournament based on what he learned. They beat the collective judgment of U.S. intelligence analysts with access to classified information.

Healthcare may have experienced ten years of change in the last six months. The next six months will require unprecedented forecasting with stakes that can’t be any higher. A study by Tetlock showed that forecasters that read his Ten Commandments For Aspiring Super Forecasters were ten percent better forecasters than those who didn’t read it. Forecasting is more than ever an important skill for all of us.

Once herd immunity is established, healthcare will look very different from February 26, 2020. Here are fifteen forecasts healthcare leaders must get as close to right as possible in the meantime:

1. People’s Behavior

It is up to the people now. If we all go fourteen days without infecting anyone, we would effectively reduce the effective reproduction rate (R) of the virus to under 1.0. If each person infected less than one person (i.e., R=0.9), the simple math equation tells us that coronavirus would eventually go away.

To create the budget, healthcare leaders must factor in the prevalence of coronavirus in their community and predict the infection R value based on people’s behavior. We know the list. Social distancing, washing hands, wearing masks and avoid crowds. This first forecast is not an easy one.

2. Government Response

To create budgets, healthcare leaders must forecast government’s relaxed regulations, mandates, support and public health rules. To enable virtual medical visits, the U.S. government relaxed HIPAA (privacy) regulations and states waived in-state physician licensing requirements. U.S. and state governments mandated virtual visits be reimbursed similar to in-person visits. The Families First and Coronavirus Relief Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act mandated coronavirus testing and treatment be paid by insurers and provided funding to pay for the non-insured.

The CARES Act also allocated $175 billion to hospitals. Small hospital received Paycheck Protection Program (PPP) loans and $200 million was distributed from the COVID-19 Telehealth Program.

The Centers for Disease Control and Prevention (CDC) provided reopening guidelines for criteria (symptoms, cases, hospitals), preparedness (testing, contact tracing, healthcare system capacity) and phased opening guidelines. The local public health rules are determined by the fifty states and District of Columbia, including postponing non-emergency surgeries.

Healthcare leaders must forecast the government response. The relaxed regulations and mandates are temporary, how long will they continue? Twelve months or three months after herd immunity? What then happens to the mandates? Will the U.S. Congress provide much needed financial support to healthcare and state government in this election season? What rules will states have in place over the next several months?

3. Covid-19 Timeline

The predictions must include:

  • Current case spread – based on the infection rate (R>1.0), including cases curve spiking, flattening and bending
  • Pre-vaccine period – to vaccine wide availability
  • Vaccine rollout period
  • Herd immunity or getting to manageable new case levels

These predictions will directly impact the other predictions, so these are important. There are many models predicting these milestones to choose from.

4. Economy

The economic downturn impacts healthcare systems investments, results in reduction in patient volumes, impacts the number of people with health insurance and insurance plan types. Many non-profit healthcare systems rely on their investments to offset their losses in operations, which may not be possible with a slow economic recovery.

A study estimates over 5 million people lost their health insurance due to the recession. Another wave may be coming. Companies such as American Airlines are planning massive layoffs in late September after $25 billion in government payroll support expires.  Millions are behind in rent and mortgage payments and the federal eviction protection ended July 25 and federally enhanced unemployment benefit that added an extra $600 per week expired at the end of July.

This results in patient volumes reductions as people can’t afford healthcare. People that lose their employer provided insurance may get Medicaid, which pays healthcare systems significantly less. People with high-deductible health plans avoid spending money. People that don’t have insurance wait until they are very sick, become hospitalized and healthcare systems may need to treat them with little or no reimbursement.

If healthcare leaders’ economic predictions are wrong, it could be financially devastating. If these predictions are right, hedge funds will want to interview them for jobs.

5. Patient Covid-19 related Volumes

These predictions include forecasting local spikes in coronavirus cases, ER visits, inpatient admissions, and ICU volume monthly for each of the next twelve months. The is critical for staffing, supplies, and planning for non-COVID related surgeries, procedures, and physician visits.

6. Patient Non-Covid-19 Volumes

If you can predict the Covid-19 related volumes, you can begin to predict the non-Covid-19 related volumes. These predictions include case mix (i.e., patient acuity and resource needs), service mix (ER, Surgery, Hospitalization, Cancer, Cardiology, Orthopedic, etc.), procedures (preventative, imaging, etc.), and elective surgeries. The term “elective surgery” could mean a triple bypass or removing a cancerous tumor as compared to an emergency surgery for appendicitis.

These predictions will help determine staffing which is half the cost of operations. These predictions are predicated on Covid-19 related volumes and patient behavior predictions.

7. Patients’ Behavior

Patients are avoiding care. A Harris Poll found half of consumers avoid seeking care because it is too hard to find, access, and pay for healthcare. A study in JAMA Cardiology found a three-fold increase in out-of-hospital non-traumatic cardiac-arrest cases in March and April 2020 compared to the same period in 2019.

The pandemic delayed 28 million elective surgeries. University of Washington saw a 65% decrease in total surgeries over a 12-week span of the virus. In addition to elective surgeries being halted in Covid-19 hotspots in the South and West, 68% of healthcare leaders surveyed believe patient fear will delay or limit demand for surgery for the next 6 months. In addition to surgeries, Physicians are advising patients of the risks of delaying cancer screening, dental visits, physical therapy, blood tests and ER visits.

There was a 250,000 decline in measles vaccines from January to April 20 coming. This is after 2019, which had the highest number of measles cases in the U.S. in twenty-five years.

Patient’s behavior related to avoiding in-person care, elective surgeries, preventative screenings, and wellness care during the pandemic will be difficult to predict.

8. Virtual Visits

To avoid hospitals and physician offices, 72% of consumers had their first-ever virtual visit during the Covid-19 pandemic. Telehealth medical claims increased 8,336% nationally in April 2020, from 0.15% in April 2019 to 13% in April 2020.  Healthcare systems like Baylor Scott & White Health in Texas delivered 75% of their clinic visits virtually.

University of Pittsburgh Medical Center (UPMC) delivered 1,000 patient-facing telemedicine visits per week until the mid-April surge to around 47,500 virtual visits per week. They plan to sustain 50% of telemedicine growth post pandemic. To make this happen, found they need to digitally embed 300-plus questionnaires, surveys, and education materials into the virtual visit process based on the type of visit. This is a transformation most healthcare systems must explore or risk competitors being first.

The rapid expansion of virtual visits will transform healthcare delivery. Healthcare leaders must predict the impact to the pandemic and post pandemic periods to develop patient relationship and digital health strategies, facility planning, staffing and technology.

9. Safety & Virtual Workforce

Ensuring the safety of patients and workforce during a pandemic requires many forecasts as to the most cost-effective approaches with already strained financial resources.

In addition to securing the Personal Protective Equipment (PPE) and other safety supplies, it requires training people to work in the ICU, augmenting overworked front-line workers, providing counseling and regular coronavirus testing. These decisions include creating negative pressure rooms, separating Covid-19 infected patients by floors, converting conference rooms to patient rooms and purifying air the heating, ventilation, and air conditioning (HVAC) system.

The virtual workforce will likely transform healthcare as much as virtual visits. Healthcare leaders had to scramble to implement the technology, training, and workflow changes for virtual visits and well as other administrative, clinical, and financial work activities. Once these are fully implemented and effective, when do you bring workforce back to the office? What workforce will remain virtual after the pandemic? Do you hire physicians in different time zones to cover early evening patient visits? Do you only hire talent in the local community or the best talent available virtually?

The safety measures implemented will influence whether patients and employees feel safe. These impact patient behavior and workforce productivity and morale. It impacts hiring, facilities and capital spending.

10. Patient Health & Acuity

While elective surgery may be deemed non-urgent, most are not optional surgery. It is estimated that 91% of US surgeries are defined as elective. Studies show delays in heart bypass, colon and lung surgeries increases costs ranging from $7000 to $17,000 and a $50,000 annual cost increase per case from disease progression in breast, colorectal, and lung cancer. This will impact patient Case Mix Index (CMI) which indicates severity of patients and the level of resources to provide care.

Anxiety and depression is rising as a result of the pandemic could push the U.S. into a mental health crisis.

CMI predictions need to factor in the new normal which could mean sicker and more complex patients. The complexity could be the result of well child visits or mental health treatment skipped. While nearly one in five U.S. adults live with a mental illness each year, just 42 percent receive treatment. The pandemic makes this even more challenging.

11. Flu Season

Hospitals are built to have enough beds during peak flu season (February, March, April) to ensure they don’t need to cancel any elective surgeries. Hospitals typically lose money providing care to flu patients and make up for their losses with the surgical patients. Epidemiologist are warning of a potential devasting possibility of Covid-19 and flu cases spiking at the same time. This would completely overwhelm the healthcare system.

While epidemiologist warn of Covid-19 and flu surges coinciding in fall, or we may see a reduction of flu like the Southern Hemisphere cases if people practice good Covid-19 behaviors like hand washing, mask wearing and social distancing.

The flu predictions are important to determine whether to acquire additional space, beds, equipment and PPE as well developing staffing contingency plans.

12. Payer Mix

Private health insurance reimburses hospitals for services at about twice the rate of Medicare. They pay 143% of Medicare physician services rates. Medicaid reimbursements for physician services is about 72% of Medicare for the same services. Two-thirds of hospitals lose money providing care to Medicare and Medicaid patients, thus private insurance is essential to make up the difference and generate positive cash flow to continue investing in improvements.

A study estimated that more than five million American workers lost their insurance this spring, a number higher than those in any full year of insurance losses. Many of these workers had additional family members covered under on their plans. These five million workers may end up enrolling in a Health Exchange Plan (a.k.a. Obamacare), Medicaid or become uninsured. The shift from commercial insurance to Medicaid or uninsured can drive a negative impact for hospitals, especially for rural and intercity safety-net hospitals. For those insured in high deductible health plans, they may avoid care.

A shift of the payer mix must be predicted to determine revenue and operating margin.

13. Emergency and Post-Emergency Reimbursements

The combination of the Coronavirus Preparedness and Response Supplemental Appropriations Act signed in March and the President declaring an emergency, invoking section 1135 of the Social Security Act, Medicare and Medicaid authorized telehealth visits to be reimbursed at the same rate as in-person visits. Telehealth visits include phone call visits. Medicare and Medicaid will need legislation to continue paying for these Telehealth visits after the emergency. The timing of end of the emergency is uncertain.

The emergency declaration includes reimbursement for Covid-19 testing and treatment rules. To remove barriers early on, the emergency rules required insurers to make Covid-19 diagnostic tests free without copays, deductibles or other out-of-pocket costs. The rules were updated with confusing guidelines to waive patient costs only for “medically appropriate tests.”

Further reimbursement adjustments can be expected during the emergency period and post-emergency reimbursements, many will require congressional legislation. This adds forecasting the November elections into the calculation. The post-emergency reimbursements will likely limit the payment amounts and the appropriate uses of the services. Patients that enjoy these services today may not react well to being required to get in their car at an inconvenient time, pay for parking, and sit in a office. This may happen if Medicare, Medicaid or private insurance reimbursement rates are below the cost to provide them. This would subject healthcare providers to new competitors that can deliver virtual visits with a lower cost structure.

The reimbursement changes during the emergency, the duration of emergency and post emergency rules must be predicted to prepare the organization for the future. This will help determine investments, service volumes and how services will be delivered.

14. Value-Based Care

Amongst the pandemic, healthcare provider performance is being measured by value-based care contracts with Medicare, Medicaid, Medicare Advantage, and private health plans. Most of these contracts require healthcare providers to achieve a minimum quality level to achieve any performance incentives. Should providers be held accountable in a pandemic for quality measures such as patients being current with preventative colonoscopies and mammograms screening or a blood sugar level test within six months? We did ask providers to drop what they were doing to take care of sick Covid-19 patients in the ICUs.

The benchmarks to measure the performance of these contract is mostly based on last year. It is unlikely that next years’ performance benchmarks will be based on a pandemic year. How do healthcare leaders factor in value-based care contracts into their forecasts?

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) created the Quality Payment Program (QPP). The QPP provides significant incentives for providers to participate in these Value-Based Care contracts termed Alternative Payment Models (APMs) that includes downside financial risk if performance benchmarks are not achieved. When the pandemic hit, Medicare had to delay the transition from exiting APM (Medicare Shared Savings Program, NextGen ACO) to the next generation of these APMs such as Primary Cares First and Direct Contracting.

In January 2020, there were 558 Medicare ACOs with many either scheduled to expire this year or require decisions to extend or transition to the next generations of value-based care contracts. These transitions and decisions include value-based care contracts with private insurers and other programs such as the Oncology Care Model, Comprehensive Care for Joint Replacement, Bundled Payments for Care Improvement – Advanced, Comprehensive ESRD Care Model, and Kidney Care Choices Model.

Healthcare leaders need to forecast the results and futures of individual Value-Based Care contracts as well as Value-Based Care programs.

15. Competitive Threats

Dr. John Halamka says the pandemic sped up Mayo’s digital transformation by 10 years. This opens the competitive landscape to many new competitors of office-based physician services. To prepare for the new competitive landscape, the largest healthcare system in New York launched their “Together We Well” program to develop direct relationships with patients digitally. Elective surgeries come from physician referrals based predominately on physician relationships with their patients. Healthcare systems, like Northwell Health know these patient/provider and provider/healthcare system relationships are essential to their financial performance.

Healthcare systems must address and forecast the impact of the many new emerging threats. Here are some of them:

  • Virtual Providers – these are video visits with board-certified physicians and mental health providers including Teladoc, Doctor on Demand, MDLIVE, Amwell and Talkspace. While these providers may have better digitally enabled providers and platforms, they lack the longer-term relationships of traditional in-office providers. This could change now with almost half of physicians now treating patients through telemedicine platforms, up from just 18% in 2018.
  • Digital First Providersthese are startup physician groups that partner with Medicare Advantage Insurers and Employers to manage the overall health and cost of members and employees. These organizations developed effective digital platforms to engage their patients, manage health and value-based care contracts. They include One Medical, Oak Street Health, Iora Health, ChenMed and VillageMD. While they represent a tiny fraction of physician services, so did Amazon when it started selling books.
  • Hybrid Providers – The hybrid providers are health insurance companies that are buying physician practices that include Optum Care (United Healthcare), CVS/Aetna, Conviva (Humana) and a digital first hybrid Oscar. Optum Care now has 50,000 employed or affiliated physicians, 250 urgent care centers and 210 surgery centers. These hybrid providers continue to grow and begin to alter certain markets.
  • Retail Health – There has been significant growth in retail health that can be delivered virtually and at a local retail stores. This is being led by massive investments by Walmart, CVS, Best Buy, Walgreens and Amazon. They are trying to make the physician visit easy and convenient.
  • Digital Therapeutics – These are new services that provide patients alternatives to traditional patient office visit models. They combine digital health (mobile app, devices, monitoring, symptom and coaching ‘bots) with people through virtual coaching and even physician consults. They often focus on specific chronic conditions (Lark Health, Livongo Health, Vida Health Virta Health, Omada Health), lifestyle changes (Noom) and behavioral health (TalkSpace). While Digital Therapeutics do not provide comprehensive physician practice services, this could change in the future. If they establish long-term relationships with their patients, they can become formidable competitors to existing physician practices.
  • Other – There are many more potential competitors that could play a role in the traditional patient-physician relationship. There are many companies stepping into this like pharmacy discount card company GoodRx offering physician visits. There are many new models such as Heal which provides home visits with physician and nurse practitioners.

The Budget

Based on the 15 predictions above, it is time to develop the budget. First, the traditional patient volumes, case mix, and revenue by month is forecasted. Then the staffing, expenses and capital spending predictions are predicted. When do you furlough, bring back, layoff or hire staff? The budgeting requests and input from the entire organizations must be overwhelming. The must be weighed and factored in. The budget is drafted. By this time, the unpredictability of the Covid-19 may have already made the 15 forecasts obsolete.

Managing the complexity of this pandemic will require making many new predictions. The good news is that it will not last too long. The next forecasting challenges will be what changes are permanent and which changes will revert to the pre-pandemic.

Photo: Feodora Chiosea, Getty Images

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