Effects of COVID-19 on Medical Resources

THE SARS-COV-2 virus has not only caused more than 44 million cases of illness and over 700,000 deaths1 in the United States, it wreaked havoc on the nation’s healthcare system. Despite extensive pandemic preparedness plans, the healthcare system was completely unprepared for the COVID-19 pandemic that caused widespread adverse effects on medical resources ranging from healthcare, staffing and revenue shortages to supply chain management challenges — all of which hindered the nation’s ability to provide specialized care for COVID-19 patients.

These shortages and challenges have cost the healthcare system hundreds of billions of dollars, and costs are expected to continue into the future. According to a recent article, “The pandemic is expected to cause a $3.3 trillion deficit in 2020, which is about 15 percent of the United States’ gross domestic product.”² And, adds McKinsey & Company, a healthcare system and services management consulting firm, “While the direct impact of COVID-19 has already been substantial, additional layers of delayed or indirect impact have the potential to dwarf the immediate effects. These additional layers of impact related to COVID-19 could result in $125 billion to $200 billion in incremental annual U.S. health system cost.”³

Declines in Healthcare Visits/Procedures

Due to fears of contracting the SARS-CoV-2 virus and its more deadly variants such as Delta, many patients decided not to visit hospitals, resulting in delayed or canceled routine or emergency treatments, including surgeries. Coupled with undulating surges of COVID-19 patients at hospitals, this caused extensive healthcare  shortages.  According  to McKinsey & Company, a recent survey it conducted showed U.S. hospital patient volumes moved back to 2019 levels in June 2021.⁴ “From March 2020 through July 2021, private sector systems surveyed in the U.S. reported, on average, between a 5 and 15 percent decrease in volumes by site of care compared to 2019 levels. Over this 17-month period, survey respondents reported that procedural volumes were down 13 percent; outpatient visits were down 13 percent; emergency room visits were down 12 percent; and inpatient admissions were down 7 percent,” says John Schulz, associate partner at McKinsey & Company.

Staffing Shortages

For several decades, there has been a severe, chronic shortage of nurses in the United States. Unfortunately, the COVID-19 pandemic exacerbated this shortage, and it will continue to do so until it is long over. The reason: Even with substantially reduced patient visits and procedures during the majority of the pandemic in the first, second and third waves, that was not enough to quell the ever-growing nursing shortage, especially during the fourth wave. In fact, countless nurses have left their jobs due to forced overtime, burnout and fear of contracting the SARS-CoV-2 virus.

To understand how serious the nursing shortage is, in August 2021, the American Association of Critical-Care Nurses surveyed 6,000 critical care nurses concerning the pandemic’s impact on their careers, 66 percent of whom said their experiences during the pandemic have caused them to consider leaving nursing.⁵

On Sept. 1, 2021, the American Nurses Association (ANA), which represents 4.2 million nurses, urged the U.S. Department of Health and Human Services (HHS) “to declare the current and unsustainable nurse staffing shortage facing our country a national crisis.” Included in ANA’s letter is a directive that HHS must “convene stakeholders to identify short- and long- term solutions to staffing challenges to face the demand of the COVID-19 pandemic response.”⁶

Two weeks later, ANA publicly supported the federal government’s “Path Out of the Pandemic: President Biden’s COVID-19 Action Plan” announced Sept.  7.  “ANA  supports  the  Biden Administration plan to use every lever to increase the number of people vaccinated as the only way to get out of this crisis [pandemic],” said ANA President Ernest Grant, PhD, RN, FAAN.⁷ Increasing the number of people getting the COVID-19 vaccine is expected to help ease the current Delta surge being experienced by hospitals and reduce the pressure and stress on nurses who care for COVID-19 patients.

On Oct. 14, 2021, it was announced the Biden Administration would direct $100 million to the National Health Service Corps to help address the healthcare worker shortage. The announcement came after the loss of 17,500 U.S. healthcare employees in September, according to the Bureau of Labor Statistics. In addition, the agency reported the country has lost 524,000 healthcare employees since the start of the pandemic, with the industry’s employment sitting at just under 16 million. The biggest job losses in the industry in September occurred in nursing, hospitals and residential care.⁸

In McKinsey & Company’s 2021 Future of Work in Nursing survey, it found 22 percent of nurses indicated they might leave their current position of providing direct patient care in the next year, with more than half reporting they were seeking another career path, a nondirect care role or retirement. Gretchen Berlin, a senior partner at McKinsey & Company, said the July 2021 survey of 100 private sector hospitals found operational leaders reported nursing turnover in the second quarter of 2021 was up 4.7 percentage points, and the nursing vacancy rate was up 3.7 percentage points (Figure).⁹

In addition, said Berlin, research conducted earlier in the pandemic (September 2020) found physicians are also experiencing burnout, which can contribute to shortages: “Almost 43 percent of the respondents reported experiencing burnout to some extent. Physicians reported seeing more medical complications, negative economic impact and higher costs as a result of patients putting off necessary care. A majority of the respondents said they are worried about their practice making it through the COVID-19 pandemic, and about a third of the respondents said that they are more likely to pursue a partnership with a larger organization, preferably with a health system, primarily for financial stability reasons.”

On a positive note, the American Association of Colleges of Nursing reported a 5.6 percent increase in 2020 nursing student enrollment.¹⁰ And, the Association of American Medical Colleges reported a 1.7 percent increase in first- year students in the 2020 academic year and an 18 percent increase in medical student enrollment in 2021.¹¹

Revenue Shortages

With patient volumes down and hospitals experiencing multiple surges of COVID-19 patients over the previous 18-month period, revenues were understandably down. And although revenues are slowly returning to pre-pandemic levels, the amount of revenue lost during the four waves of the pandemic over a two-year period might never be recovered.

KaufmanHall, a healthcare management consulting firm, released its 2021 Healthcare Performance Improvement Report in October, which found “volumes in many service lines remain below pre-pandemic levels, putting downward pressure on revenues.” One highlight of the report was that “75 percent have experienced adverse revenue cycle impacts during the pandemic, including a higher percentage of Medicaid patients and increased rates of denial.”¹²

According to two other recent reports from KaufmanHall, “a resurgence of COVID-19 cases from rapid spread of the highly contagious Delta variant is raising new uncertainties for hospitals, health systems and physician practices across the country.”¹³ The company’s September 2021 National Hospital Flash Report, which draws on data from more than 900 hospitals, says the spread of the hyper-transmissible Delta variant continued to strain hospitals and healthcare systems nationwide in August.

However, more than a year and a half into the pandemic, even though COVID-19 continues to undermine performance improvement efforts, revenues are starting to rise. “Given the increase in higher acuity cases and yearly rate changes, U.S. hospitals saw revenues increase year-to-date compared to both 2019 and 2020 for a sixth consecutive month,” states the report. “Gross operating revenue rose 9.6 percent year-to-date versus 2019 and 16.6 percent year-to-date versus 2020 [not including the Coronavirus Aid, Relief and Economic Security Act]. Outpatient revenue saw the biggest increases at 10 percent year-to-date versus 2019 and 20.3 percent versus 2020, while inpatient revenue was up 5.6 percent year-to-date compared to 2019 and 11.8 percent year- to-date compared to 2020.”¹⁴

In addition, KaufmanHall’s August 2021 Physician Flash Report, which draws on data from nearly 100,000 providers representing more than 100 specialties, shows “physician groups across the country saw productivity and revenue improvements in the second quarter compared to the same period in 2020 and to pre-pandemic levels seen in the fourth quarter of 2019. However, significant increases in expenses and continued high levels of physician investment compared to the pre-pandemic period remain areas of concern. The changes are among multiple dramatic swings experienced across key physician performance metrics for the quarter, especially compared to the second quarter of 2020 when nationwide shutdowns and widespread concerns over potential exposure to the virus caused patient visits to plummet at the start of the COVID-19 pandemic.”1

As of March 1, 2021, HHS’s $178 billion provider relief fund gave almost all Medicare-enrolled healthcare providers grants that amounted to at least 2 percent of their previous annual patient revenue, which can be used to cover lost revenue and unreimbursed costs associated with the pandemic.¹⁶ However, the grant is not a full representation of the costs of the pandemic. Additional costs include indirect costs borne across several dimensions, including increased caregiver turnover and clinical costs associated with patients whose medical conditions have exacerbated during the last 18 months. There are also costs from projects that were stalled or revamped due to the pandemic. For example, hospitals in the process of redesigning waiting rooms might have pivoted to allow for more social distancing or screening capabilities. Other hospitals might have reevaluated their need for the number of airborne infection isolation rooms or more air filtration.

“Our healthcare system is still learning the full breadth and scale of these effects of the pandemic, and the overall cost to the healthcare system remains uncertain, especially as additional variants continue to emerge and we gain a greater understanding of complications from the virus, including long-haul patients,” says Neil Rao, a partner at McKinsey & Company.

Supply Chain Management Challenges

In addition to patient, staffing and revenue shortages, the healthcare systems also experienced abrupt adverse challenges in its supply chain management system. And, many of these challenges were predicated on how the system operated prior to the pandemic.

One of those challenges is that the United States healthcare system is designed to provide highly individualized healthcare for complex diseases such as cancer or the central nervous system. However, when a pandemic occurs, mass illness of a specific organ system such as respiratory, as is the case with the COVID-19 pandemic, stresses the healthcare system far beyond what it was prepared for.

According to Daniel Moskovic, a partner at McKinsey & Company, the personal protective equipment and ventilator shortages experienced in the COVID-19 pandemic could theoretically have been mitigated by maintaining adequate/more supplies, rapidly introducing new supplies and/or putting into place product utilization and reengineering protocols. “The first two strategies would require substantial investment, which is unfavorable in an overall push to reduce healthcare costs year-to-year; these would certainly increase costs and, given the infrequency of any given type of pandemic, would likely be viewed unfavorably by taxpayers and consumers [patients],” explained Moskovic. “The latter strategy could potentially be studied and deployed at a far lower cost, but there would be tradeoffs in shifting standards of care and/or redesigning products that likely would be much higher cost.”

Additionally, Moskovic said the structure of the payment system incentivizes reduction in unit costs that, like many other industries, leads to a focus on cost minimization by suppliers to remain competitive. Offshoring, just-in-time inventories and specification optimization are all natural outcomes of this type of economic model. “Now that we’ve experienced the challenges of this type of stress on our healthcare supply chain management system, there will need to be a serious and transparent dialogue about investments we will make — and how those investments will be funded — to determine the tradeoffs we are comfortable with across outcomes, cost and care delivery practices,” said Moskovic.

“The  financial  hit  that  hospitals and health systems continue to take from the changing utilization patterns caused by COVID’s public health and socioeconomic effects is unprecedented. As a result, it’s more important than ever for hospital and health system executives to achieve bold and continuous improvements in long-term cost structure to match the decline in patient revenue; build a product portfolio to take advantage of the accelerating movement from fee- for-service to value-based payment; and transform the core delivery business for the truly exceptional clinical and financial performance that is required by a more competitive marketplace,” says Kenneth Kaufman, managing director and chair, at KaufmanHall. “The stubbornly persistent effects of this pandemic remind us that the organizational goal in 2021 and beyond is not to find the way back to a pre-COVID comfort zone, but rather to negotiate and navigate toward being the best performing healthcare organization possible within a fast-changing and uncertain post-COVID business environment.”

Costly Response

It is unfortunate the United States’ healthcare system was so unprepared for the COVID-19 pandemic. Even when it was clear that healthcare systems had to pivot quickly to respond to and manage the pandemic, they failed to do so, and this slow response cost hundreds of billions of dollars. Until staffing and revenue issues and supply chain management challenges are adequately addressed to meet the healthcare system’s current business model, any future pandemics will likely cause similar adverse effects on the nation’s medical resources.