Tallying federal pandemic support for the health sector

In the months since the COVID-19 pandemic began, the federal government has directed more than $400 billion to the health sector to shore up its finances and enhance its capacity to care for COVID and non-COVID patients, according to an online financial tracking service assembled by the Committee for a Responsible Federal Budget (CRFB). It is not certain if this cash infusion signals cost control has been shelved for good, or whether it might return once the crisis eases.

 

 

The shift has been jarring. Pre-COVID, the talk in health policy was of lowering prices for hospital care and prescription drugs, and, more generally, on steering resources away from a sector widely viewed as wasteful and overbuilt. When the crisis began, Congress and the administration reversed course quickly and began injecting new resources into the system to improved its resilience during the escalating public health emergency.

The readiness concerns weren’t frivolous. Hospitals in hot spots have been scrambling to avoid being overwhelmed by COVID victims needing intensive care, and small physician practices have struggled as their patients have avoided getting non-COVID care. As with other sectors in the national economy, lockdowns and social distancing protocols have been costly to medical care providers.

Federal support hasn’t been confined to new funding from Congress. The administration has extended direct relief to the industry, through administrative action, and the Federal Reserve has helped through special lending provisions.

The following, drawn from CRFB’s compilation, is a summary of the various sources of new financial support provided to date.

  • Grants to Providers. Congress has approved $175 billion in direct payments to providers, and another $32 billion to support additional preparedness measures. As of the end of August, more than $120 billion of this funding had been expended by the federal government.
  • Higher Medicare Fees. For several years, a sequester required by previous budget-related legislation has cut Medicare’s fees for hospitals and other providers. Congress has canceled the sequester through December to provide an added financial boost during the crisis. In addition, Congress has boosted payment rates for telehealth and other services. All totaled, these provisions have sent an additional $18 billion to the health sector.
  • Accelerated Medicare Payments. During the intense first wave of COVID-19 cases, the administration advanced expected Medicare payments to hospitals, providing a financial bridge of sorts to get them through the worst of the financial crunch. The intention was to recoup the funds that had been advanced by offsetting payments later in the year. So far, the advanced payments have been worth about $100 billion to the industry. Although the program was designed as a loan, the industry has requested that it be converted into a grant by nullifying the repayment requirement. Congress may accede to this request if a compromise bill is assembled and passed before the election (or at least before the end of the year).
  • Paycheck Protection Program. Congress authorized a broad small business lending program to help firms get through the lockdown phase with less disruption to employment levels. Many small health-related firms have participated in it, drawing an estimated $58 billion in loans.
  • Federal Reserve. The Fed’s various business lending facilities have been tapped less heavily than was expected when they were launched. To date, less than $1 billion has been provided to health-sector firms.

More assistance may be on the way. The House-passed Heroes bill, and the Senate GOP’s alternative (called the HEALS Act), both would send substantial new funding to the health sector. Heroes would increase direct grant funding for the industry by $100 billion; HEALS offers $25 billion. It is not certain a negotiated bill will pass before the election, but if it does, it is sure to provide some additional financial relief for hospitals, and possibly for other providers too.

The rush to shore up the finances of the health industry during the pandemic points to an irony in U.S. health care. The nation’s provider network is already the most expensive in the world, and yet it does not do all that we wish it would for patients or society. In the current moment, we have discovered it is less robust than we would like to handle a surge of patients in a crisis.

The natural response is to send new resources to the industry, to pay for improved capacity. But this means that the country is placing even more of its limited annual income into the health sector, at the expense of other priorities. That is unlikely to be a satisfying answer for the long-term.

A better approach would redirect what can be saved from a more efficient system into improved public health measures, including a more equitable distribution of services across society. The pandemic has demonstrated once again that this agenda is as urgent as ever. 

James C. Capretta is a columnist for State of Reform and holds the Milton Friedman Chair at the American Enterprise Institute.