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States’ Recent 1115 Waiver Applications Include Provisions to Support Children during the Pandemic

States must be sound stewards of taxpayer dollars and the need to do so now is particularly acute as states confront financial landscapes devastated by the pandemic. Federal investments are providing relief to unemployed workers, small businesses, schools and universities, hospitals, and other health care providers. Additional funding is directed to governors to parse out in a manner that further mitigates need. Their challenge is understanding that need in light of direct grants to providers so funds – whether from federal appropriation, state general funds, or other grants – can be put to the most effective use.

To date, much of the federal relief focuses on hospitals, acknowledging that they have risen to the challenge of the COVID-19 pandemic in heroic ways. Frontline staff, even when under-resourced and not fully protected, are risking their own health to protect ours and they deserve our thanks and praise. Congress has recognized hospitals and the challenges they face by appropriating billions of new dollars to support them. Those dollars come in a variety of ways – from a 20 percent bump in Medicare rates, supplies and medicines from the national stockpile, forestalling cuts in Disproportionate Share Hospital program payments and significant direct grants and loans.

This chart details the amounts and required oversight of COVID-19 federal funds allocated to hospitals, providers, and states by the Families First Act, CARES Act, and HR 266.

Demands are great and undoubtedly hospitals will be among those seeking additional financial assistance. Faced with a potential resurgence of disease next fall and winter, hospitals may choose to maintain surge capacity and seek higher reimbursement rates from both private and public payers. Some may report challenges to their sustained viability, an issue of particular concern in rural America. In addition to the federal funds flowing directly to hospitals and providers, each state is receiving, at a minimum, $1.25 billion in Coronavirus Aid, Relief, and Economic Security Act (CARES Act) funding to allocate within their states to address the pandemic.

State policymakers want to know where and how federal funds directly granted to hospitals are being spent and may want to condition additional spending to address policy priorities and protect consumers by, for example, requiring hospitals to bill uninsured and underinsured – who now are generally charged at the highest charges – at more affordable prices. Connecticut Gov. Ned Lamont’s April 5, 2020 executive order* may prove instructive.

States may wish to examine these issues as they deliberate future allocations to hospitals:

Cash flow: Hospitals have delayed elective procedures resulting in lost revenues and furloughed workers. Federal funds can be used to cover those losses, but how will lost revenue be calculated? Will hospitals’ calculus of these lost revenue use high and unjustified chargemaster rates? How will hospitals account for offsets to these losses as they slowly begin to perform elective procedures and bring in revenue?

Reimbursement increases: Medicare, and in some states Medicaid, have increased provider reimbursement for COVID -19 care. How will that be accounted for? Will hospitals roll back rate increases when pandemic hospitalizations flatten and federal funding is exhausted?

Grants and loans: How will a state know where and how these dollars are being spent?

National stockpile: What equipment, supplies, and drugs did hospitals receive from the stockpile? What additional equipment, supplies, and drugs required billing to payers?

Following the money trail matters as states budget for health care coverage for Medicaid, corrections, and public employees, including teachers and university employees and their dependents. It matters as state insurance regulators review rates and work to protect consumers from growing medical costs. And it matters as states face federal audits to ensure that the funds they receive were spent effectively. In the throes of the pandemic and current pressing needs, new money will necessarily be spent quickly – a potential recipe for error. For example, it was recently reported that federal funds went to health systems and included funding for hospitals in a system that had closed.

Upward pressure on hospital reimbursement may translate into insurance premium increases. Insurers have long budgeted reserves to minimize the impact of a pandemic and generally cannot make up for past losses in future rates. But if hospital costs increase, insurers will be compelled to raise rates.

Finally, it is not yet clear when or if the federal government will provide states with comprehensive reports identifying how much funding each hospital and provider group received from the various relief programs – critical information that states need to make decisions about future resource allocations.

In a crisis like this, the federal government’s efforts to get money out fast in order to come to the rescue makes good sense. Protecting hospitals and recognizing the stresses this pandemic brings remains a top priority. It’s not easy to raise questions about hospitals’ spending in the face of a pandemic and their extraordinary work to address it, but state governments need to know that those dollars are spent as efficiently and effectively as possible to serve as many people as possible.

State leaders need to understand the impact the pandemic has had on their local health care systems and how to most responsibly allocate scarce resources. To do so requires state action – through executive orders, licensing standards, or conditions on future funding – to make sure states have the information they need to balance the critically important services of hospitals against competing needs and profoundly reduced state revenues resulting from the pandemic.

The National Academy for State Health Policy is working with a group of state officials to design a reporting template that would be easy for over-burdened hospitals to complete and provide state policymakers with the information they need to make the tough budget calls before them.

*On April 21, 2020, Connecticut Gov. Ned Lamont issued a new executive order rescinding two provisions (2(a) and 2(b) in his April 5 order detailing financial protections for consumers who receive out-of-network care for COVID-19.

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