September 25, 2023


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U.S. Covid Funding Flaw Shortchanges Hospitals in Black Communities

The federal government is doling out pandemic relief money to hospitals using a formula that discriminates against predominantly Black communities because, in general, less is spent on their health care even when their need is greater. The method used by the U.S. Department of Health and Human Services to help medical providers hammered by Covid is based on past revenue at those institutions. This shortchanges counties that have more Black residents, even though they have higher numbers of patients with Covid-19 — or with other conditions that put them at greater risk for it — as well as hospitals that are under the greatest financial strain, according to report published in JAMA last month. “Communities of color tend to spend less for the same health-care need for a lot of different reasons,” said Pragya Kakani, a Phd student in health policy at Harvard University who was the report’s lead author. “They are often under-insured. There is bias in the medical system that causes them to be under-treated even if they are insured. And the insurance they have often pays at a lower price.” Using that for future allocations cements past inequity into government policy, she said.The federal CARES Act and related laws this spring provided $175 billion in relief funds to hospitals and community-based providers. The money is meant to assist those that saw their regular revenue streams halt during Covid-related shutdowns, and to help them pay for the additional expenses of treating Covid patients. The flaw embedded in the allocation of those relief funds was similar to one in a popular hospital algorithm that researchers found was less likely to refer Black patients than White ones to programs that provide close medical monitoring for complex conditions, even if the Black patients were equally sick or sicker. That research, published in Science in October, received widespread attention, including discussion in the U.S. Senate and among state regulators. It found that the algorithm widely distributed by Optum, the health services division of the country’s largest insurer, UnitedHealth Group Inc., was more likely to overlook Black patients. That’s because it relied on costs — how much was spent on each patient’s health care — to determine who had greater medical need, introducing the same flaw as using revenue per patient or hospital. Because less is spent on care for Black patients, they appeared “healthier” to Optum’s formula. “The algorithm is not racially biased,” said Tyler Mason, a spokesman for Optum. The study was based on one health system’s incorrect use of a clinical analytics tool, he said in a statement. “The tool is designed to predict future costs that individual patients may incur based on past health care experiences, and does not result in racial bias when used for that purpose.” 


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(Bloomberg) — The CARES Act funding relied on the same flawed method that caused issues for the health system in the study, said Ziad Obermeyer, one of the authors of the Covid paper as well as the research on the Optum algorithm. He and his fellow researchers looked at actual disbursements where data already existed and used the publicly disclosed formula to calculate the rest. They found that communities with more Black residents did get more relief dollars —  partly because of  grants that sent funds straight to hard-hit areas — but not as much as they should have based on the number of virus cases, underlying conditions that put residents at risk for severe cases, and how financially strapped the hospitals in those communities are.

“When you compare counties that have a similar level of funding, the counties that are disproportionately Black are in much worse health,” Kakani said. “You shouldn’t need to be in worse health to get the same funding.”

The report comes on top of findings that Black and Latino people had far higher case counts, hospitalizations and deaths from Covid-19. One of every 1,450 Black Americans has died of Covid, compared with one of every 3,350 White Americans, according to data from the Johns Hopkins Center for Health Equity reported in the National Urban League’s State of Black America report. Rates of infection are more than twice as high for Black people as White, and hospitalizations are more than four times more frequent. 

“The existing design of many formula-based funding streams are in and of themselves promoters of continued disparity. Many of these funding formulas were not designed to address racial inequity, racial disparities,”  said Marc Morial, president and chief executive officer of the Urban League. Instead, when it comes to inequality, “you’re codifying it and you’re perpetuating it.”

The first $50 billion in pandemic-relief funding was distributed in April based on providers’ revenue. Subsequent payments were targeted at Covid hotspots and certain types of providers, like rural hospitals or long-term care facilities. HHS did set aside more funding for hospitals that serve uninsured patients and for rural areas, but the bias related to revenue was evident there as well, Obermeyer said. In the pool of money reserved for rural areas, for example, the money also was allocated based on revenue or substitutes for it, like total expenses or number of beds, he said. 

The disparity in distribution extends to community-based care — like clinics and doctors’ offices — which means fewer funds go to providers that serve a large number of Medicaid recipients, said Allison Orris, counsel at consultant Manatt Health.  And while HHS tried to patch the inequalities with targeted funding for areas with high rates of Covid or those with high rates of uninsured and Medicaid patients, those targeted funds went to hospitals, leaving out clinics and other smaller providers. “We are really concerned that it has the result of delivering the least amount of aid to providers on the ground serving communities in need,” she said.

Some of Orris’s colleagues plan to release a report on this in the next few weeks. A number of these issues probably occurred because of the need to swiftly get funds out the door. But because there is still money left that hasn’t been allocated, they contend the department should look at ways to make up the difference with coming allocations. “HHS has been somewhat responsive,” said Anne Karl, a partner at Manatt.

In an emailed statement, HHS spokeswoman Katherine McKeogh said, “In choosing to act quickly, HHS adopted revenue as a measure of how to distribute funds across health care facilities and providers of different sizes and types. While other approaches were considered, these would have taken much longer to implement.” The department made grants to providers disproportionately affected by Covid, she said, and will “continue to make distributions that balance the need for immediate funding with targeted distributions that address specific health system needs.”

 The issue goes beyond this pool of money to other aspects of the U.S. health-care system, where revenue or costs from health care often serve as a proxy for need and are used to determine who gets scarce resources, said Obermeyer, an associate professor at the UC Berkeley School of Public Health. How much is spent on patients is also a funding criteria in the Medicare 340B program, which provides  physician-administered drugs like chemotherapy at lower prices to vulnerable communities, said Harvard’s Kakani.  

Obermeyer said it’s another example of using revenue as a shorthand for need. “Because everything can be measured with dollars, we forget that not everything should be measured in dollars,” he said, “and that that choice implies a certain set of priorities and values that embed all of these structural inequalities.”

Instead, policy makers and health-care providers need to look at ways to measure actual medical need. In this case, the U.S. has detailed data on things like hospital strain, case counts and the local prevalence of conditions like heart disease, renal failure and high blood pressure that make Covid worse, Obermeyer said. 

In the meantime, the pandemic continues to lay bare inequities in the U.S. health-care system that hurt Black patients. 

“When we get to 200,000 deaths, we’re probably going to have 60,000 to 70,000 Black deaths,” said Morial of the Urban League. “Black people are going to make up 35-40 % of the deaths, but we’re only 13% percent of the population. Covid took the reality of these disparities and put it on blast, on Front Street, so nobody can deny that it exists.” 

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