Thread by @nealemahoney

@zackcooperYale and I wrote a piece on “Economic Principles To Guide The Allocation Of COVID-19 Provider Relief Funds” in @Health_Affairs:

Link: healthaffairs.org/do/10.1377/hbl…

/Begin thread

This spring, Congress set up a $175 billion Provider Relief Fund to provide support for hospitals, physician groups, nursing homes, and other health care providers. To date, HHS has allocated roughly $75 billion of these funds, with additional distributions in progress.

We are deeply grateful for the heroism displayed by health care workers. And we support Congress’s decision to set up the Provider Relief Fund. But we are concerned that funding has not been well-targeted.

To date, most of the funding has been allocated in proportion to historical provider revenue. The issue is that provider revenue is highly concentrated. Among hospitals, the top 5.0% of hospitals account for 34.5% of revenue, and the top 25% account for 74.6%.

This means that the largest payments are going to a small number of financially secure hospitals that have significant market power and face little risk of closure.

See this excellent piece by @JesseDrucke, @jbsgreenberg, and @sarahkliff for more:

nytimes.com/2020/05/25/bus…

In our article, we lay out 3 principles for better targeting of funds:

1. Addressing Externalities. The externalities associated with treating COVID-19 are large and not fully internalized by insurance payments. Providers should not face financial constraints to hiring additional personnel, purchasing PPE, postponing elective procedures, etc.

The initial $12 billion allocated based on COVID-19 admissions through April 10 (High-Impact Allocation) adheres to this principle. HHS should continue to distribute funds based on up-to-date numbers net of previously distributed funding.

2. Precautionary Investments. It is prudent to "hope for the best and prepare for the worst". Yet providers may not invest if they do not anticipate large future caseloads. To encourage investments, we should compensate providers for COVID-19 preparedness regardless of future use

3. Preventing Provider Closures. We are concerned that the sharp drop in health care demand may lead to closures of providers that are needed to provide COVID-19 care and will reduce competition, with detrimental effects on prices, access, and quality of care over the medium run.

The difficult question is how to target funds. The history of closures over the past two decades indicates that rural hospitals and hospitals with low bed counts are particularly vulnerable. We should also direct payments to providers with more uninsured or Medicaid patients.

We support the appropriation of funding and applaud the administration for the transparent distribution of funds. However, we are concerned that the distribution in proportion to historical revenue was poorly targeted. Fortunately, there is still $100 billion left to distribute.

The recently announced allocation of $15 billion to providers that participate in Medicaid and CHIP programs that did not receive payments from the General Allocation and $10 billion in targeted funds to safety-net hospitals are steps in the right direction.

Moving forward, we should continue to target funding to providers at greatest risk of closure and encourage precautionary investments and treatment of COVID-19 patients.

/end