The 2021 Healthcare Financial Forecast: What to Expect, How to Prepare

Written by Bobbi Brown, MBA, Senior Vice President, Health Catalyst.

2020 was full of unbelievable statistics and powerful events. No one predicted the year we experienced—one that jolted the entire world and will impact healthcare institutions for years to come. We need to thank the workers in our industry and acknowledge the burnout many have felt. At the same time, we need to emerge from crisis mode and plan for uncertainty. Our industry proved we could respond quickly and meet our communities’ healthcare needs, and the COVID-19 vaccine development and distribution will strengthen our effort in 2021.

Every year, I create lists on topics and lead healthcare stories. In 2020, COVID-19 topped all the lists. In my review of Health Affairs’ top ten blogs, COVID-19 made the title of all ten entries.

With the pandemic’s prominence in global consciousness in 2020, we can expect COVID-19 awareness to continue into 2021, shaping healthcare policies, delivery, and industry financial well-being. The Wall Street Journal article “Economists Expect Tough Sledding in Winter, then a Rebound,” presents a logical case for our current situation, which includes a surge in cases followed by results from the stimulus and the vaccine. Goldman Sachs expects our gross national product to grow 5.8 percent in 2021, which contrasts with a contraction of 3.5 percent in 2020. The next-normal 2021 economy will look different, including work options, travel, digital shopping, and telehealth medical appointments.

The Healthcare Financial Forecast: Five Top Areas of Impact for 2021

Looking at healthcare financial topics in 2021, I’ve chosen five prominent areas of impact for healthcare finance teams to monitor and take action:

Election Impact

President-elect Joe Biden campaigned on supporting the Affordable Care Act (ACA), managing the coronavirus pandemic, and lowering drug costs. While Trump and Biden agree on policies for lowering drug costs, sweeping healthcare policy changes will face hurdles and most likely will not be on top of the list. Both the American Medical Association (AMA) and the American Hospital Association (AHA) rank ending the pandemic as job number one. In the first 100 days of the new administration, the AHA has requested the enactment of 28 specific priorities to ensure hospitals have resources in the areas of relief, recovery, and rebuilding.

Biden and his administration will provide a federal leadership role—a more centralized approach and guidance—for the coronavirus. Key areas of action include more rigorous guidelines to stop pandemic surges, strengthening the role of public health, and a demand for reporting transparency that shows COVID-19 impact on all populations.

A likely flurry of executive orders will rescind Trump administration policies. Additionally, the new administration would like to expand the ACA by building on health insurance exchanges. The Biden campaign did not support the Medicare-For-All initiative, which more progressive Democrats have advocated, though Biden has discussed a public option to offer a Medicare-like plan. Other potential change areas include lowering the age of Medicare eligibility to 60 and support for Medicaid expansion. Healthcare consolidations will likely be of high interest to the incoming Secretary of Health and Human Services, Xavier Becerra.

As the new administration unveils and discusses more comprehensive policies, providers must be aware of these policies’ potential impact. The cost of healthcare has not been a focus area, but the Congressional Budget Office (CBO) estimates healthcare will exhaust Medicare’s Hospital Insurance Trust Fund in 2024. This pending urgency will force national-level discussion on healthcare for the Biden administration. All providers and beneficiaries will need to be stakeholders in this discussion.

While hospitals and clinicians are currently working at full capacity on the pandemic, organizations must also consider these actions to prepare for the new administration:

• Organizations receiving CARES funding of more than $10,000 need to prepare for reporting requirements due February 15, 2021.
• Providers need to work with their associations to continue to advocate for their needs. There could be changes to due dates and reporting requirements as the new administration takes control of the various offices.

Price Transparency

The hospital price transparency rules went into effect as of January 2021, after attempts from various hospital associations to prevent the new legislation were unsuccessful. CMS believes price disclosure will help the public make more informed decisions about their care, increase market competition, and drive down costs of care.

Each hospital must provide transparent, accessible pricing on its website to comply with the regulations. The organization must post the charges in two ways:

• A machine-readable file.
• A consumer-friendly display of shoppable services (at least 300 services the consumer can schedule in advance).

For the above postings, hospitals must provide the discounted cash price, payer-specific negotiated charges, and de-identified minimum and maximum negotiated charges. CMS announced aggressive plans to monitor the enforcement of this regulation. The organization plans to audit websites starting in January 2021 and investigate all complaints. Meanwhile, The AHA has sent a letter to the Biden administration asking for relief from this regulation.

The second transparency bill, the Transparency in Coverage proposed rule, involves the second stimulus bill, which includes a provision to stop surprise billing. A surprise bill occurs when an out-of-network provider is involved in a patient’s care (e.g., an emergency department physician employed by an out-of-network provider). The Republican and Democratic parties and consumer groups supported this legislation. The changes will take effect in 2022 and apply to doctors, hospitals, and air ambulances, with ground ambulances excluded. Health providers and insurers will work through an arbitration process to settle on a fair price.

Health systems must perform the following to navigate the above price transparency rules:

• Review for accuracy and branding all pricing materials posted to the organization’s website.
• Prepare a response for consumers and the press regarding the above postings.
• Search online and see if price postings are easy to find and understandable from a consumer perspective.
• Regarding surprise billing, review out-of-network providers at all system facilities and plan for a 2022 response in conjunction with payers and providers.
• Develop materials for consumers to explain the implication of the surprise billing regulations including dates, intent, and how to find support within the healthcare organization.

Financial Forecasting

In a January 2021 Wall Street Journal article, “CFOs in 2021 Will Keep an Eye on 10 Things,” CFOs stated their priorities for the upcoming year. The top of the list includes economic recovery, corporate taxes, and mergers and acquisitions. CFOs are scrutinizing spending plans for both operating and capital expenses. The remote work environment may lead to additional reductions in office space. CFOs are eyeing essential healthcare functions, like keeping the revenue cycle and supply chain running smoothly with world-class goals.

The following factors make projecting future trends and developing budgets challenging. There are massive volume changes, new consumer trends, and payer shifts:

• The AHA estimates the projected loss to hospitals in 2020 at $323 billion. Revenue dropped due to elective shutdown and volume declines with higher costs for staff, supplies, equipment, and buildings. The Kaufman Hall National Flash Report for December 2020 shows 2020 volume decreased from 2019 with emergency department (ED) visits down by 16 percent and adjusted discharges down by 11 percent. Margins without CARES Act dollars are 5.1 percentage points lower, and margins with CARES money are 1.9 percent lower.
• Additionally, visits in the ambulatory setting fell by 60 percent in April. These visits climbed higher but remained 10 percent below pre-pandemic baselines at the end of 2020. The insurance sector reflects this decline in healthcare spending in its rising margins, which are approximately 20 percent higher in the third quarter of 2020 compared to the previous year.
• Altarum reported the overall healthcare spending was up .8 percent in October, with hospital, nursing home, and dental spend all lower. Meanwhile, spending increased on home health and prescription drugs.
• In August 2020, Medicaid enrollment had increased by 7.4 percent or 5.3 million enrollees compared to February 2020. The increase has been steady across the months.
• 2020 saw an explosion in telehealth visits. In April 2020, 43 percent of all primary care visits for Medicare occurred via telehealth—compared to a pre-pandemic telehealth share of .1 percent. Medicare and other payers revised regulations (e.g., reimbursement parity) on these visits, which helped prompt this dramatic growth.

Healthcare finance teams need to take the above dynamic factors into account as they develop healthcare financial forecasts. They must rethink old processes, timeframes, and assumptions. Many healthcare organizations are using shorter timeframes and re-forecasting quarterly. War rooms taught us a lot about crisis management and our organizations. We need to bring those learnings forward to create new models of care. For example, collaboration with partners and population health can help our patients and members with preventative care.

The following actions will help finance teams account for the dynamic factors in healthcare today as they forecast for 2021:

• Start with a dynamic and frequently updated forecasting model and test its drivers.
• Have the patience and flexibility to accommodate multiple iterations of the model.
• Develop a communication plan for actions and follow-up in which all levels of management must sign-off on the latest version of financial projections.
• Remember the basics of revenue cycle and cost management and review existing processes.
• Review and update the existing planning process to consider organization knowledge of backlog
• Teach the forecasting concepts and learn from clinicians on operations.
• Develop contingency plans for various financial scenarios.

Value-Based Care

The ACA initiated many new programs for value-based care (VBC), which have gained some traction but not what legislators expected. According to the Health Care Learning and Action Network, in 2018, 35.8 percent of healthcare payments were involved in APMs, including government and commercial payers. Value-based care involves alternative payment models (APMs) that shift from a piecemeal payment to a more inclusive payment for a bundle or a member. The main goal is rewarding providers for high performance in quality and affordability.

The pandemic has shown that VBC represents the potential to align incentives, provide revenue streams, and manage a population. By covering the entire continuum of care and focusing on patient health, providers can improve care quality and cost. The VBC model incentivizes industry entities to work together and with their communities.

However, despite VBC benefits, transitioning from the fee-for-service (FFS) model has been challenging. Various models shift risk to the provider, including bundled payment for a condition and ACOs with upside and downside potential. CMS introduced the Shared Savings Program in 2012 as a voluntary program. In November 2020, the National Association of ACOs presented evidence this ACO model has shown improved performance over the seven years with a combined gross savings of $7 billion. In 2019, ACOs were covering 11.4 million members. Only 35 organizations joined the National Association of ACOs in 2020, and the organization didn’t accept new applications for 2021 due to the pandemic.

CMS continues to pilot and test payment models in addition to VBC. In December 2020, CMS announced the Geographic direct Contracting Model called Geo. The model will allow direct contracting entities to take full financial responsibility for all care for Medicare FFS beneficiaries in a geographic region. Applications are due April 2, 2021. Geo will be the most aggressive move CMS has made to move to a full capitation model, as it shifts the risk to the direct contracting entity. One of Geo’s most interesting parts is the two-page application guide that includes best practices and a checklist. The scoring template can help healthcare leaders survey their organizations and to see their projected score.

While CMS is trying to test and pilot new models, the complexity and overlapping of programs are becoming overwhelming for the average healthcare provider. Health systems know they need to provide care in the right setting, even if it’s outside the hospital. Organizations understand care management can improve health for a population, but how can they get paid to do the right things for patients and members?

Resolving healthcare’s financial complexity daunts even high-powered projects. For example, for three years, Haven (a joint venture of Amazon, JPMorgan, and Berkshire-Hathaway) tried to find innovative healthcare solutions, but Haven has announced they will close as of February 2021.

While healthcare hasn’t found the perfect model, the industry can continue in the journey. Leaders and innovators must acknowledge there will be changes in payment and that VBC is here to stay. The mechanisms of payment and risk may change, but the need for affordable, quality care is fundamental.

Organizations can continue to navigate VBC with the following actions:

• Review all VBC contracts based on COVID-19 and determine where risk has increased?
• Determine the impact of reduced utilization and the potential increases in volumes.
• Evaluate quality metrics measurement processes.
• Work with partners, such as payers and other providers, to communicate contract status.
• Complete an honest evaluation of the organization using the aforementioned best practices and checklist from Geo—where are the strengths and weaknesses?

Health Equity

COVID-19 has exposed equity gaps in our healthcare system. Communities of color face a disproportionate impact from the disease, including higher rates for cases, hospitalizations, and death among Black and Hispanic Americans and American Indians (Table 1).

Table 1: COVID-19 impact by race and ethnicity.

Health equity made Forbes’ and the Commonwealth Fund’s top ten lists of healthcare predictions for 2021. McKinsey listed the need to upgrade our public health infrastructure, including broader use of telemedicine and virtual health, in its forecast for the next normal. Major healthcare organizations are also addressing the equity gap. For example, in January 2021, the Mayo Clinic posted a leadership position in health equity and community engagement and has committed $100 million over ten years to support the growth and development of diversity, inclusion, and equity programs.

The following actions support sustainable health equity improvement:

• Participate in all reporting that includes diversity metrics.
• Support efforts to expand health equity programs.
• Partner with other community organizations that focus on social determinants such as foodbanks and housing resources.
• Include awareness of community diversity needs in COVID-19 vaccine distribution.
• Include social determinants of health in strategic planning.

Change and Progression in 2021

As we focus on a future of change and progression, concepts such as reshape, retool, and reimagine come to mind. Events planned in 2021 in healthcare and beyond are looking forward with these themes in focus. For example, the conference theme for the 2021 AHA Leadership Summit and Virtual Conference is “Lead, Connect, Transform—Reimagining Health Care.” Also, in the Washington Post January 3, 2021, article 6 Things Disney Fans Can Expect from the Parks in 2021, Disney announced plans for the 50^th anniversary of Walt Disney World in Florida. While the celebration has shrunk due to the pandemic, and the experience will be different, Disney is embracing the next normal. The park has reimagined one of its rides, “Snow White’s Scary Adventures,” with new scenes, story details, technology, a new, less-scary name, “Snow White’s Enchanted Wish.” If Disney can reimagine a new world, we can all do the same for healthcare.

I would challenge you to an exercise I saw in the New York Times early in 2021. Imagine and draw (not just write) what you want to see more of and what you want to see less of in 2021. Do this exercise for your personal and professional life as we reshape, retool, and reimagine more sustainable, inclusive healthcare delivery.