Provider Impact of COVID-19 Recession and Coverage Trends

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A potential recession due to job losses and business closings as a result of COVID-19 will cause shifts in the payer mix and, ultimately, revenue dynamics for physician practices.
Please note: This is an archived post. Some of the information and data discussed in this article may be out of date. It is preserved here for historical reference but should not be used as the basis for business decisions. Please see our main Insights section for more recent posts.

For an average physician practice with approximately 43% of revenue coming from commercially insured patients and 17% coming from Medicaid patients (Gillis, “Physicians’ Patient Mix,” AMA Policy Research Perspectives), each 1% shift of commercial enrollment to Medicaid, exchange, and uninsured coverage will result in an estimated .26% loss in aggregate revenue.

Importantly, the magnitude of the impact on revenues will vary by practice and is determined by the following factors:

  • Physician specialty: The code mix of procedures billed by providers in a given specialty will largely dictate the impact of coverage shifts, with Managed Medicaid reimbursement rates averaging 62% of commercial rates for 11 specialties analyzed by Avalere, ranging from 51% for cardiology to 81% for orthopedic surgery.
  • Practice geography: The magnitude of payer mix shifts will vary by state, as a function of both the number of jobs lost and the availability and affordability of alternate health insurance options in each state. The sustainability of Medicaid physician reimbursement rates will also vary by geography, being highly dependent on the health and Medicaid funding parameters of individual state budgets. Avalere believes that physician practices in states such as Wyoming, Nebraska, Utah, and Oregon share factors that support the sustainability of Medicaid physician payment rates, whereas states such as Wisconsin, Tennessee, Pennsylvania, and Missouri may face near-term budgetary challenges.

While Avalere’s analysis highlights directional impacts and considerations, the expected impact on a specific physician specialty or practice will depend on factors beyond those listed above, including the practice’s current payer mix, code mix, and metropolitan statistical area of operation.

Specialty Physician Reimbursement by Payer Class

In assessing the impact of recessionary coverage shifts, Avalere reviewed 2019 average national reimbursement rates for the top 10 Medicare FFS codes (ranked by spending and excluding J codes) across commercial, Medicaid Managed Care Organizations (MCOs), and MA payers using Inovalon’s MOREdatabase. Avalere found that reimbursement rates vary widely as a percentage of Medicare. Commercial rates averaged 110% of Medicare for this group of 11 specialty codes, while MCOs averaged 69% and MA averaged 90%.

Avalere also examined the relationship between commercial and MCO rates, anticipating—as illustrated by historical analogues—that a material portion of commercial enrollment will transition to MCOs due to COVID recession-related job losses. MCO rates average 62% of commercial rates, meaning that, for those enrollees shifting from commercial to MCOs (and putting aside utilization considerations), a physician will receive 38% less reimbursement for the average procedure. When taking into account the patient coverage mix of the average practice and accounting for the most likely coverage pathway of a commercially insured patient who loses insurance, this means that each 1% shift of commercial enrollment to Medicaid, exchange, and uninsured coverage will result in an estimated .26% loss in aggregate revenue.

Table 1: Physician Specialty Reimbursement by Payer Class, as a Percent of Medicare FFS
Physician Specialty Commercial MCO Medicare Advantage (MA) MCO as % of Commercial
Cardiology 99% 50% 78% 51%
Pediatrics 116% 64% 95% 55%
Neurology 103% 60% 83% 58%
Urology 150% 88% 99% 58%
Pulmonology 104% 61% 90% 59%
Gastroenterology 122% 74% 74% 61%
Endocrinology 105% 64% 95% 61%
Primary Care* 105% 67% 98% 64%
Dermatology 110% 71% 105% 64%
OB/GYN 91% 66% 88% 73%
Orthopedic Surgery 110% 90% 93% 81%
11-Specialty Average 110% 69% 91% 62%

Source: Inovalon MORE2. Methodology identifies the top 10 codes billed by each specialty (based on 2019 Medicare FFS spending) and uses the Medicare FFS spending weights to calculate price indices by specialty.

*Family Practice

Geographic Considerations Underlying Enrollment Shifts During the COVID Recession

In addition to assessing the impact of reimbursement dynamics as they relate to coverage shifts, Avalere also analyzed the state level dynamics which inform the sustainability of Medicaid and MCO reimbursement.

Through mid-May, approximately 36 million workers (23% of the employer base) have lost their jobs due to the COVID-19 recession, almost 4 times the number who lost their job during the Great Recession (8.4 million, or 5.7% of the employer base). While the insurance shifts resulting from the Great Recession’s layoffs are illustrative, a direct extrapolation of this shift is insufficient in assessing the near- to medium-term Medicaid funding environment.

From 2007 to 2009, a decline of 8.2 million (4.6%) in employer-sponsored insurance (ESI) enrollment led to an 8.1 million (20.6%) increase in Medicaid enrollment and a 4.9 million (11.1%) increase in the uninsured population according to the US Census Bureau. In addition to a decline in ESI, the general population grew by approximately 5 million individuals over the same time period, which accounts for the combined increase in Medicaid, exchange, and uninsured lives. In comparing the present environment to historical analogues, several factors are likely to influence the magnitude of shift between payer types that differ from prior recessions and may provide some insulation for revenue loss due to shifts away from commercial coverage:

  • The Affordable Care Act (ACA) allowed for the expansion of Medicaid, resulting in 37 states (including Washington, DC) expanding their Medicaid coverage, providing an additional avenue for the newly unemployed in certain states.
  • The ACA bolstered the market for individual insurance through the establishment of health care exchanges supported by subsidies, which are sufficient in many markets to make individual insurance a more attractive option than was historically the case.
  • Young adults, up to age 26, are able to access coverage under their parent’s health insurance, which may mitigate the impact of job losses among the younger population.
  • Initial job losses have been concentrated in industries that have lower offer and uptake rates of ESI.

In order to apply these factors to the individual state environments, Avalere built a model to assess how the interaction of various state budget, coverage, and policy dynamics are likely to impact the forward-looking sustainability of state Medicaid physician payment rates.

In order to stratify the outlook for physician practice coverage and reimbursement dynamics by geography, Avalere assigned a weight to each of the factors below to arrive at a score for each state. Under this method, a lower score represents a more favorable environment, while a higher score represents a less favorable environment. This method includes a quantitative aggregation of the following factors:

  1. Unemployment filings to date, as a percentage of total state employment
  2. Average net premium for individual market health plans, after subsidies
  3. State cash on hand balance as a percentage of the state’s general fund
  4. State Medicaid expenditures (non-federal) as a percentage of total state expenditures
  5. Whether or not a given state expanded Medicaid
  6. Whether or not a given state cut physician procedure rates in historic recessions

The graphic below summarizes key factors impacting the state environment within which physician practices operate today. These factors will impact the magnitude of expected commercial plan enrollment loss, the level to which this enrollment will shift to Medicaid, individual exchange, or uninsured, and the potential impact state budget deficits may have on the sustainability of Medicaid physician reimbursement rates.

Chart 1: State Classification by Key Factors Influencing Reimbursement Rate Environment for Physician Practices (Lower Quintile Indicates Lower Risk)
Chart 1: State Classification by Key Factors Influencing Reimbursement Rate Environment for Physician Practices (Lower Quintile Indicates Lower Risk)

Sources: US Office of Unemployment Insurance Weekly Claims Report, US Bureau of Labor StatisticsKaiser Family Foundation, Marketplace Average Premiums and Average Advanced Premium Tax Credit, Open Enrollment 2020NASBO: The Fiscal Survey of States. Fall 2019

Map Methodology

The score was computed by assigning a 1 through 4 quartile for (a) losses as a percentage of state jobs (smallest =1); (b) average net premium after subsidies (lowest = 1); (c) balance as % of general funds (largest = 1); and (d) Medicaid as a percentage of state expenditures (smallest = 1). Medicaid expansion was scored as a 1 (yes) or 3 (no), while Medicaid physician reimbursement cuts during Great Recession were scored as a 1 (no) or 2 (yes). States that did not report average net premium after subsidies were given a score of 2.5. The states are ranked from smallest (more favorable) to largest (less favorable) scores.

Key Questions for Physician Practices and Investors

When preparing for potential shifts in patient coverage and enrollment due to COVID recession dynamics,  healthcare providers and investors should consider several key questions:

  1. In which ways are COVID recession scenarios likely to differ from historical analogues in terms of coverage and reimbursement dynamics?
  2. Does the practice accept or plan to accept Medicaid FFS or Medicaid MCO contracts in the near term?
  3. In which states do Medicaid MCOs pay closest to parity with the company’s existing commercial rates?
  4. To what extent will an economic downturn likely push cash-pay patient toward in-network providers?
  5. How likely is the federal government to provide near-term support for state or local coverage?
  6. Can the practice target states of operation, which would allow for gains in market share while mitigating rate compression?

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