KENNESAW, Ga. | Jan 7, 2021

Few people may have imagined that one day, hospitals would undergo financial crises, along with restaurants and retail stores, during a pandemic. The healthcare industry, which is usually immune to economic recessions, has been hit hard when it is needed the most. In April 2020, over 1.4 million people working in the healthcare sector lost their jobs (BLS, 2020a). As of December 2020, healthcare workers at nursing facilities continued to lose jobs (BLS, 2020b). The reason why these could happen is multifaceted but directly related to the rapidly changing demand and supply of health care since the beginning of the pandemic.

Dr. Weiwei Chen, a health economist, has been interested in studying changes in health care use. In the pre-COVID19 era, her research examined health care use in response to changes in income, health insurance coverage, and among patients of different characteristics. During the pandemic, all these factors come into play in shaping health care use. Her on-going research focuses on the dynamics of health care use during the pandemic.

It started with a sharp decline in demand and supply

The beginning of the pandemic witnessed a sharp decline, rather than an increase, in the demand for health care. Patients afraid of contracting the virus canceled or postponed their doctor’s appointments or scheduled treatment. Later, the supply-side also started to cut their services. Many hospitals and clinics paused elective surgeries or non-urgent procedures to limit exposure of patients and staff to the virus and make space for the potential flood of COVID-19 patients. 

As the healthcare system began to see a surge of COVID-19 patients in April, it quickly became overwhelmed. Shortages of personal protective equipment (PPE), ventilators, ICU beds, healthcare staff, etc. made healthcare facilities hard to operate. Financially, the high costs of treating COVID-19 patients coupled with the lost revenues from canceled elective procedures made many facilities fall into financial hardship. It was also the month during which over 1.4 million healthcare workers were laid off or furloughed. Since then, the demand for COVID-19 care has been limited by the supply-side. For non-COVID patients, only those who were in severe conditions were likely to be treated.

Then a gradual rebound

As the pandemic continued into May and June, PPE supply began to catch up gradually. Hospitals and clinics started resuming elective surgeries and non-urgent procedures. Patient volume began to bounce back. However, hospital admissions were still below the predicted level (Heist, Schwartz, and Butler, 2020) and ambulatory care was below the pre-pandemic level (Mehrotra et al., 2020). 

In July, the number of COVID-19 cases reached a new peak. This time, many backlogged non-COVID patients gradually returned for care. The demand continued to bounce back. Meanwhile, some hospitals, especially the ones in rural areas, had experienced cumulative financial strain and had to shut down or close. The reduced revenue was not only because of the lower care volume and higher expenses during the pandemic but also because of patients’ reduced ability to pay as an estimated 7.7 million people lost their jobs with insurance coverage (Fronstin and Woodbury, 2020). Many remaining hospitals were operating on thin margins.

Push to build capacity

While facilities were operating close to their limit, efforts were made to maintain and expand their capacity. The U.S. Department of Health and Human Services has been distributing a $175 billion CARES Act Provider Relief Fund to hospitals and healthcare providers, including rural providers, safety-net providers, and providers serving uninsured patients. The Centers for Medicare & Medicaid Services (CMS) and insurance companies also expanded coverage of telemedicine, which helps expanding access to care without increasing the risk of disease exposure. As another wave of case surges came in November and December, whether the capacity would be stretched enough to meet the increasing demand, particularly demand for COVID-19 care, is the key in shaping health care use in these months.

Why research on health care use matter?

Health care is essential to individuals’ well-being, it is therefore hoped that all the demand for health care is met. While it is not always the case in the healthcare market, studying health care use patterns helps us predict the demand and prepare for shortage in the supply. It is more important than ever during this pandemic. Here are several ways that research on health care use matters now: First, evidence on health care use helps guide resource allocation. For example, a large increase in COVID-19 inpatient admissions may signal the need for additional funding or assistance to combat the virus; patients in areas with staff shortage are now allowed to be treated by providers from other areas; some efforts track available hospital beds to help patients find inpatient care needed and inform provider capacity planning (CovidCareMap, 2020). Second, measuring health care use also helps identify overuse or underuse of certain services. For example, many children missed their routine childhood vaccination during the pandemic (CDC, 2020a). It is a warning sign of the potential re-emergence of vaccine-preventable diseases. Third, monitoring health care use allows us to detect other consequences of the pandemic, such as mental health problems. Fourth, examining health care use by group or by region helps identify disparities in health care use. For example, Hispanic and black COVID-19 patients are found to have a much higher hospitalization rate than white persons (CDC, 2020b).

Policy actions

Health care demand and supply changes during the pandemic triggered several policy actions along the way, including the CARES Act Provider Relief Fund distribution, the promotion of telemedicine, remote patient monitoring, and at-home hospital care. These are all strategies trying to expand provider capacity and fulfill health care needs.

There are also policy options that can be adopted to enhance demand. For example, efforts can be made to help uninsured people obtain insurance coverage, such as Medicaid or private health insurance plans from federal or state Health Insurance Marketplace. Policymakers may also work with insurance companies to reduce cost-sharing for COVID-19 treatment. Without help, uninsured and underinsured people are more likely to forgo care, which could lead to undetected COVID-19 cases, and more likely to end up with large medical bills when they seek care (Chen, Waters, and Chang, 2015; Chen and Page, 2019).

There are still bigger and deeper problems behind the scenes that call for more fundamental policy changes. For example, healthcare facilities appear to be too vulnerable to demand fluctuation. Many providers struggle to keep their doors open when there is a shortage of healthcare workers. It reinforces that government intervention is necessary for correcting market failures like this. In addition to relief funds, the public sector needs to ensure a broad and sustainable safety-net care supply. There also needs to be a pipeline of healthcare workers that are equipped with professional skills and sufficient PPE to work in a pandemic like this. Another consideration is payment reform. Hospital and healthcare providers have relied too much on patient volume for revenue. To reduce the impact of demand fluctuation on supply, the system should move away from volume-based models and focus more on value-based models. Furthermore, it is also time to rethink the provision of health insurance coverage. It is apparent how insurance coverage linked to employment is easily affected by the economy. Future healthcare reform should set it as a primary goal to break the link and work towards providing universal access to health care.

About the author:

Dr. Weiwei Chen is an Assistant Professor of Economics at Kennesaw State University. Her work lies in the area of health economics and health services research, with a particular focus on the demand and supply of healthcare services. She has published in influential journals, such as JAMA Pediatrics, Health Economics, Journal of Economic Behavior & Organization, Medical Care Research and Review, and Economics Letters.