Coronavirus Impact: Business Risk and Insurance for Healthcare Providers

For the healthcare industry, insurance and "what's covered," which seemed clear at the onset of this pandemic, are no longer clear.

This blog post can also be found on our Coronavirus Resource Center.

About a month ago I was asked to present at a company-wide team meeting on the impact that the coronavirus pandemic is having on our healthcare clients both in terms of business risks (the historically uninsurable kind) and insurance coverage.

What was "true" only a month ago today has changed, materially in some cases.

The severe business risks that were already apparent, primarily vastly decreased volumes, have grown even more stark and painful for the provider community while other risks, particularly insurable risks have evolved as both the industry and the government also evolve with lightning speed compared to historical terms.

Insurance and "what's covered," which seemed clear at the onset of this pandemic, are no longer clear. In some cases, the changes are a "good thing" for healthcare clients as private actions and regulatory mandates urge liberal coverage interpretation.

However, for others, the changes are not so good and in all cases, the answer depends on each client's unique circumstances.

How Has SARS-CoV-2 Impacted Healthcare Clients? Businesses?

Let’s take a closer look at three areas where COVID-19 has impacted the healthcare business:

  1. Increased use of technology and telehealth
  2. Emerging risks
  3. Insurance coverage

1. Increased Use of Technology and Telehealth

As we are seeing in so many areas, the coronavirus pandemic has accelerated shifts in healthcare business models that were already underway.

For example, the industry is looking to technology in the form of digital health, wearables, data mining, and AI to try to track the disease and better predict which treatments, responses, and policies are the most effective.

We are also seeing a rapid shift to greater utilization of telehealth. Our strictly telehealth clients are seeing volumes skyrocket and our more traditional clinic, hospital, and physician practices are rapidly increasing their telehealth visits.

However, this is no panacea, particularly for the latter group. According to a recent survey by the Primary Care Collaborative:

  • Eighty-nine percent of providers have experienced significant decreases in patient volume. Our clients are reporting decreased revenues of 40% to 70%+ with far more clustered around the 70% decrease range.
  • Sixty-five percent in the survey report that they have patients who cannot use virtual health because they have no computer or internet.
  • While the Centers for Medicare and Medicaid Services (CMS) has quickly responded, increasing the procedures eligible for telehealth reimbursement and increasing the dollar value of those reimbursements to match in-person rates, 57% of providers said that "less than half of their visits were reimbursable." Further, the rates available for audio-only telehealth lag video rates and there is no risk adjustment. Thus, even the volumes recaptured through telehealth dramatically lag the revenues that providers were earning prior.
  • Forty-two percent of provider groups say that they are laying off or furloughing staff. More broadly, it has been reported the 266 hospitals and hospital systems have taken these measures. In April, 1.4 million healthcare workers lost their jobs.

CMS is working hard to provide subsidies through payments for Paycheck Protection Program (PPP), Personal Protective Equipment (PPE), and additional "bonus" funds for SARS-CoV-2 care. The Federal Communications Commission has received $200 million from congress to aid providers in making investments in broadband and telehealth.

However, even with these much-needed additional funds, they are far from making up the shortfall and all these measures lead to other risks as we detail below.

2. Emerging Risks

Businesses are facing emerging risks now and in the long term as they respond to the current environment caused by the coronavirus pandemic.

Cyber Risks

Both healthcare delivery and business administration are taking place remotely via technology, so the risks of cyber perils increase. It is already widely reported that hacking is on the rise by both foreign governments and more traditional bad actors in the healthcare and life science community .

In addition to the above risks and the increased cyber risk that all employers face due to the new work-from-home culture, healthcare providers face unique HIPAA-related risks. In order to execute in a telehealth setting, healthcare providers need access to HIPAA protected data.

How that access is achieved and the safeguards in place are critical as providers scramble to "stand up" virtual care practices. In light of these risks, it is critical that providers choose responsible partners such as experienced consultants, EMR, telehealth platforms, and cloud providers that understand these risks and provide proper compliance.

Credentialing Risks

Another emerging trend that we are seeing is relaxed healthcare provider credentialing standards. Hospitals are looking for ways to increase patient capacity by 20% to 30% and expedite the recertification of retired doctors and nurses to handle coronavirus patient surge.

Such actions open the door to increased litigation down the road. We are seeing immunities introduced to help encourage rapid capacity increases, however, history has shown that these immunities can be less airtight down the road.

Reimbursement Shifts and Subsidies Risks

Related to the above, we are already seeing the emergence of increased whistleblower and False Claim Act litigation for providers who, with the encouragement of CMS and Centers for Disease Control, are taking liberal views on COVID-19 labeling and seeking to benefit from enhanced reimbursement codes. Special caution is needed to ensure proper documentation of appropriate coding based on the actual care delivered.

We have seen this before with the ACA encouraging bundled payments and provider networking through ACOs only to later allege Stark violations and antitrust.

3. Insurance Coverage: Pre-Pandemic / Post-Pandemic

Now let’s turn our attention to three types of key insurance products, how they would generally respond and how they are actually responding for healthcare providers now.

Pre-Pandemic Post Pandemic

The principal area of coverage healthcare businesses have been looking to is "business interruption." In order to claim business interruption under a property policy, even one with affirmative coverage for "civil authority," the insured must first have suffered a property loss as defined by the policy.

This usually requires physical damage and cannot be subject to an exclusion. While the vast majority of property policies in the US contain some form of exclusion for "communicable disease," property coverage for healthcare providers often does provide an affirmative grant of coverage for virus or communicable disease.

This virus coverage is prevalent for healthcare clients with large property schedules and "monoline" property coverage (as opposed to property coverage as part of a packaged policy).

However, even when there is an affirmative coverage grant, the coverage requires proof of the virus' presence and the coverage is usually sublimited and intended for cleanup expenses to remove the virus. So for the vast majority of insured healthcare providers, recovery on a property policy for business interruption expenses due to virus-triggered, mandated shutdowns looked to be quite challenging.

Carriers have consistently shown willingness to provide coverage for anybody with an affirmative coverage grant for a virus or absence of an exclusion.

Additionally, there are countless private party actions and regulatory efforts to "mandate" coverage for these claims even when an exclusion is present.

There are countless theories on how these claims are valid, but the general consensus is that for any broad application of coverage to be provided, an accompanying federal financial response to backstop insurance carrier losses will be necessary.

Simply put: the capital does not exist to pay these claims broadly in the absence of such a backstop. In light of this, we at Woodruff Sawyer are advising healthcare clients to document their losses and assemble a claim to get in the queue to be paid.

We cannot determine coverage or lack thereof and ultimately the facts of the case and the developments over time will dictate recovery.

Pre-Pandemic Post Pandemic
For most non-healthcare businesses, it has been very hard historically (if not impossible) to prove compensability under workers’ compensation for a communicable disease. The rationale being that it is very hard to prove that it was acquired at the workplace.

For example, if your employee gets the flu, even if their colleague in the next cube had the flu immediately prior, any expenses related to care have always been claimed under the employee’s health benefits plan, not workers’ compensation.

For healthcare provider employees there is a bit more potential for compensability under workers’ compensation, but even for healthcare it has remained relatively rare.

Insurance carriers have been very receptive to offering premium relief now versus at audit for reductions in payroll exposures due to less payroll from:

  • Furloughs and layoffs
  • Reclassifying staff into a lower cost payroll class. For example, classifying as "clerical" those working remotely versus a higher cost code such as "care provider" or "outside sales."

Additionally, healthcare insurance carriers have been far more liberal than in the past to affirm compensability for workers who contract the disease.

They now conclude that the healthcare worker contracted COVID-19 on the job.

Most recently an Executive Order in California shifts the burden from the employee to the employer to prove that the disease was not contracted in the workplace. It will be very hard to deny a COVID-19 claim in California, and other states appear to be following suit in some form.

This is an employee/employer "victory" that is very case dependent. For example, it is safe to say that most hospital and senior care employers in the US have high deductibles or self-insured retentions often with no aggregate on those retentions. Thus, any outbreak among your employees could quickly escalate to millions of dollars.

Finally, the other risk that we see emerging is from employee unions and classes coming together to sue employers for lack of proper PPE or related training. We generally feel that these cases will be very hard to prove in such unprecedented times.

Further limiting this risk is the "sole remedy" theory of workers’ compensation. Essentially once the claim is paid under workers’ compensation, it prohibits employees from suing their employers unless they can prove gross negligence.

Pre-Pandemic Post Pandemic
Here the situation is clear. There is seldom an exclusion for claims due to communicable diseases or virus-related medical malpractice.

Here again, it will be a high bar for plaintiffs to allege malpractice for inadequate care for the disease or inadequate care for someone who feels they were delayed treatment for an unrelated disease in such unprecedented times. We expect that carriers will defend these cases and pay for any valid claims.

Unlike the shift towards broadening coverage seen above, we are seeing a troubling emergence of carriers introducing pandemic or "communicable disease exclusions." We personally feel that these will be very hard to enforce and we will be reticent to recommend any carrier with such an exclusion in place for our clients.

Looking Ahead: Healthcare Client Renewal Environment

The last thing that healthcare clients need right now are challenging renewals, but just as this pandemic has hastened changes already underway in healthcare delivery, it has also hastened what was already a hardening market for most coverage lines.

Several insurance carriers have introduced outright moratoriums on new business. Even when this is not the case, the overwhelming sentiment that we are seeing from carriers is a reticence to compete for new accounts.

Their first reaction when receiving a submission is to ask: "What is wrong with their current program? Are they being non-renewed?" The sentiment is that if there is nothing distressed with their current situation than they would rather not waste anybody's time.

In contrast, in most cases, incumbent insurance carriers are taking very reasonable approaches to existing client renewals.

We are often able to negotiate terms more favorably than market trends for clients with consistent carrier relationships. The insurance community understands that our clients are hurting and they are making every effort to offer any kind of relief they can in pricing, coverage, and ease of doing business.

Essentially the mirror image of the position they are often taking for new accounts where they are asking for far more detailed submissions and underwriting data than in the past.

However, a challenging development to beware of that seems to be universal is that carriers are far slower to respond than in the past and they are also unwilling to release terms any further than 30 days out from renewal. There is an overarching wariness due to the rapidly changing landscape that is a headwind for all renewals. This can present quite a challenge for many clients, particularly large non-profits where board approval is required for coverage decisions and the board only meets occasionally.

Now more than ever it is important to be proactive, prepare quality submissions, and to develop a relationship with your carriers. Just as important is working with a brokerage partner who has the experience and the structure to guide you through the process and to be a trusted business advisor for you in these unprecedented times.


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