News Release
March 25, 2020  

Contact:
David Pittman
NAACOS Health Policy and Communications Advisor
202-640-2689 or [email protected]

NAACOS Estimates Potential Impact of COVID-19 on Medicare Spending
Pandemic Could Cost from $38.5 Billion to $115.4 billion over the Next Year

WASHINGTON – A new analysis from the National Association of ACOs (NAACOS) estimates the ongoing COVID-19 pandemic could cost Medicare between $38.5 billion and $115.4 billion over the next year. The final number will depend on factors such as severity of disease and hospitalization rates. 

The analysis, some of the first to be developed on the subject, shows the pandemic will place a hardship on healthcare organizations that participate in payment models, like ACOs, that hold providers accountable for patients’ healthcare spending. More ACOs today are being held at risk, meaning they face penalties if spending rises above pre-set spending targets. A similar burden will be placed on Medicare Advantage plans. 

Because roughly 20 percent of all Medicare beneficiaries are assigned to an ACO, potential new COVID-related costs for Medicare ACO beneficiaries could range from $7.7 billion to $23.1 billion, the analysis found. Since total spending for ACO beneficiaries was about $125 billion in 2018, ACOs could see an increase in spending between 6 percent to 18 percent because of COVID-19. 

“We are just on the tip the iceberg of a global, public health pandemic that is out of ACOs’ control. We could see generated savings wiped out, massive penalties, and worst of all, ACOs dropping out of the program to avoid losses,” said Clif Gaus, Sc.D., NAACOS president and CEO. “In short, COVID-19 threatens to derail adoption of alternative payment models and the movement to value-based care. We need policymakers to give assurance to ACOs that they’ll take appropriate steps to provide needed protection.” 

NAACOS and nine other leading healthcare organizations last week asked the Centers for Medicare & Medicaid Services for relief so that providers participating in alternative payment models are not inappropriately penalized for the extreme costs of handling the COVID-19 pandemic. Requests included holding clinicians harmless from performance-related penalties for 2020, making appropriate adjustments to spending targets, performance scores, patient attribution and risk adjustment, and providing financial support and reinsurance. 

NAACOS’ COVID spending estimates are based on the number of Medicare beneficiaries, infection rates of 20 percent, 40 percent, and 60 percent, and in-patient admission rates associated with COVID-19 by age are derived from experience in China. The average cost of a 90-day pneumonia hospitalization was used as a proxy for new Medicare spending. This includes clinically relevant services provided post-discharge. 

However, hospitals are suspending certain services including elective surgeries and diagnostic services and are also experiencing sharp declines in face-to-face visits as communities’ practice social distancing. The estimate doesn’t include COVID-related costs for patients who are not hospitalized or costs faced for infection-control protocols and equipment.