The Structure and Financing of Health Care Systems Affected How Providers Coped With COVID‐19

Policy Points

• We compared the structure of health care systems and the financial effects of the COVID‐19 pandemic on health care providers in the United States, England, Germany, and Israel: systems incorporating both public and private insurers and providers.
• The negative financial effects on health care providers have been more severe in the United States than elsewhere, owing to the prevalence of activity‐based payment systems, limited direct governmental control over available provider capacity, and the structure of governmental financial relief.
• In a pandemic, activity‐based payment reverses the conventional financial positions of payers and providers and may prevent providers from prioritizing public health because of the desire to avoid revenue loss caused by declines in patient visits.

Financial distress in the health care sector is a nonintuitive consequence of a pandemic. Yet, in the United States, the budgets of health care providers are under considerable strain as the COVID‐19 pandemic continues.Analysts anticipate that these continuing financial challenges will generate a wave of consolidation among hospitals and physician practices through 2021. ¹ Critical access hospitals, hospitals serving vulnerable populations, and independent primary care practices are particularly threatened. ² , ³ These dire financial outcomes arose through the interaction of the public health measures taken in response to the COVID‐19 epidemic, particularly the shutdown of elective procedures, along with the underlying structure of US health care financing and the US government''s emergency response.But COVID‐19 is a global epidemic. The twin effects of COVID‐19 treatment and reduced non‐COVID treatment have dramatically changed the number and case mix of patients treated in similar ways across high‐income countries. In all countries, the number of acutely ill patients with COVID rose while the number of patients with other conditions fell. The effects of these changes on health care providers’ finances have varied, however, depending on how health care systems are ordinarily structured and financed and to what extent government actions protected health care providers. By comparing the financial effects of the COVID‐19 pandemic in the United States and three other health care systems (England, Germany, and Israel) that incorporate both public and private insurers and providers, we can identify the governmental and policy factors that contributed to the severity and distribution of the effects of COVID‐19 on US providers.In all four countries, the impacts of COVID on the utilization of health care were similar. During infection surges, the number of COVID patients stressed hospitals, and as a result, nonurgent services for non‐COVID patients were postponed or forgone. The governments of all four countries directly supported health care providers with funding for increased COVID‐related expenditures (such as for personal protective equipment). The governments of all four countries also protected and compensated health care providers for their financial losses, but they did so in different ways, reflecting the structure of their health systems. In Israel, which uses relatively little activity‐based financing, the government saw less need for dedicated financial assistance. The governments of Germany and England shifted the form of payment away from activity‐based financing toward budgets to provide financial protection to health care providers, particularly in hospitals. Finally, in the United States, where activity‐based payment is prevalent and the health care–financing system is far too fragmented to permit a rapid switch in the method of payment, the government directly compensated providers for lost revenue.