Perspective
The Structure and Financing of Health Care
Systems Affected How Providers Coped With
COVID-19
RUTH WAITZBERG,∗,†WILM QUENTIN,†,‡
ERIN WEBB,†,‡and SHERRY GLIED§
∗Smokler Center for Health Policy Research, Myers-JDC-Brookdale Institute,
Jerusalem; †Technical University Berlin; ‡European Observatory on Health
Systems and Policies, Brussels; §Robert F. Wagner Graduate School of Public
Service, New York University
Policy Points:
rWe compared the structure of health care systems and the financial ef-
fects of the COVID-19 pandemic on health care providers in the United
States, England, Germany, and Israel: systems incorporating both pub-
lic and private insurers and providers.
rThe negative financial effects on health care providers have been more
severe in the United States than elsewhere, owing to the prevalence of
activity-based payment systems, limited direct governmental control
over available provider capacity, and the structure of governmental fi-
nancial relief.
rIn a pandemic, activity-based payment reverses the conventional finan-
cial positions of payers and providers and may prevent providers from
prioritizing public health because of the desire to avoid revenue loss
caused by declines in patient visits.
The Milbank Quarterly, Vol. 99, No. 2, 2021 (pp. 542-564)
© 2021 The Authors. The Milbank Quarterly published by Wiley Periodicals LLC on
behalf of The Millbank Memorial Fund
This is an open access article under the terms of the Creative Commons Attribution-Non-
Commercial-NoDerivs License, which permits use and distribution in any medium, pro-
vided the original work is properly cited, the use is non-commercial and no modifications
or adaptations are made.
542
How Health Care Systems Affected Providers During COVID-19 543
Financial distress in the health care sector is a nonintuitive conse-
quence of a pandemic. Yet, in the United States, the budgets of
health care providers are under considerable strain as the COVID-
19 pandemic continues.
Analysts anticipate that these continuing financial challenges will
generate a wave of consolidation among hospitals and physician
practices through 2021.1Critical access hospitals, hospitals serving vul-
nerable populations, and independent primary care practices are partic-
ularly threatened.2,3 These dire financial outcomes arose through the in-
teraction of the public health measures taken in response to the COVID-
19 epidemic, particularly the shutdown of elective procedures, along
with the underlying structure of US health care financing and the US
government’s emergency response.
But COVID-19 is a global epidemic. The twin effects of COVID-
19 treatment and reduced non-COVID treatment have dramatically
changed the number and case mix of patients treated in similar ways
across high-income countries. In all countries, the number of acutely
ill patients with COVID rose while the number of patients with other
conditions fell. The effects of these changes on health care providers’ fi-
nances have varied, however, depending on how health care systems are
ordinarily structured and financed and to what extent government ac-
tions protected health care providers. By comparing the financial effects
of the COVID-19 pandemic in the United States and three other health
care systems (England, Germany, and Israel) that incorporate both pub-
lic and private insurers and providers, we can identify the governmental
and policy factors that contributed to the severity and distribution of
the effects of COVID-19 on US providers.
In all four countries, the impacts of COVID on the utilization of
health care were similar. During infection surges, the number of COVID
patients stressed hospitals, and as a result, nonurgent services for non-
COVID patients were postponed or forgone. The governments of all
four countries directly supported health care providers with funding for
increased COVID-related expenditures (such as for personal protective
equipment). The governments of all four countries also protected and
compensated health care providers for their financial losses, but they
did so in different ways, reflecting the structure of their health systems.
In Israel, which uses relatively little activity-based financing, the gov-
ernment saw less need for dedicated financial assistance. The govern-
ments of Germany and England shifted the form of payment away from
544 R. Waitzberg et al.
activity-based financing toward budgets to provide financial protection
to health care providers, particularly in hospitals. Finally, in the United
States, where activity-based payment is prevalent and the health care–
financing system is far too fragmented to permit a rapid switch in the
method of payment, the government directly compensated providers for
lost revenue.
The COVID-19 Pandemic and the
Public Health and Economic Responses
The COVID-19 pandemic has had devastating effects. It has caused
1.19 million deaths worldwide in just the ten months ending in Oc-
tober 2020.4The pandemic and the response to it have also put enor-
mous strains on all health care systems, in two distinct ways. First,
health care systems have had to treat surges of very seriously ill pa-
tients, sometimes in numbers that overwhelmed capacity. Second, ef-
forts to control the pandemic through lockdowns and other precautions
have substantially reduced the number of non-COVID cases treated
and particularly the number of elective procedures performed in all
countries.5
All four of the countries discussed in this article experienced the first
widespread outbreaks of COVID-19 in late February and early March
2020. Figure 1 describes the evolution of the pandemic over time in
each of the four countries.
The public health response of all four countries was much the same. In
early March 2020, they imposed significant restrictions on movement,
closed most retail stores, closed in-person education, and suspended elec-
tive procedures. These provisions remained in effect through at least May
2020, easing somewhat through the summer and resuming in the fall as
the pandemic resurged.6
The Structure and Financing of Health
Care Before COVID-19
Even though the pandemic and the public health response were similar
in the four countries, the health system context in which these events
occurred was not. The four countries’ systems vary substantially in how
How Health Care Systems Affected Providers During COVID-19 545
Figure 1. Covid-19 Deaths per Million People, 20204[Color figure can be viewed at wileyonlinelibrary.com]
546 R. Waitzberg et al.
providers are paid and in the roles played by public and private insurance
(a brief summary can be found in Table 1).
United States
In 2019, a little more than one-third of Americans obtained their pri-
mary insurance coverage through several public programs; more than
half were covered by a highly fragmented private insurance system; and
9.2% of the population was uninsured. In general, public insurance
programs pay regulated, activity-based rates (fee-for-service for physi-
cians; diagnosis-related groups [DRGs] for hospitals) that are typically
substantially lower than the negotiated rates paid by private insurers,
which themselves vary among insurers. Although many physicians are
paid salaries, these are often tied to underlying activity levels. Almost all
hospitals and most physicians accept both publicly insured and privately
insured patients, but the mix of publicly insured and privately insured
patients varies considerably among providers. Providers that serve low-
income and disadvantaged populations receive more of their payments
from public plans, while those that serve higher-income populations rely
more heavily on private insurance payments.
England
England operates a national health care system, the National Health Ser-
vice (NHS), available to all residents. The NHS directly funds clinical
commissioning groups (CCGs, led by general practitioners, GPs) and
specific health care services. CCGs contract with public hospitals and
most reimbursement follows nationally determined DRG rates; special-
ists are salaried employees of the NHS.
About 10.5% of the population purchases private insurance, which
is often provided as an employee benefit.7Patients purchase private
insurance to obtain faster access to nonacute specialist care or to fi-
nance services not provided by the NHS. Nearly all physicians work-
ing in the private sector also work for the NHS, but receive higher re-
imbursement for private-sector patients, although some purely private
health care providers serve only patients with private supplementary
insurance.
How Health Care Systems Affected Providers During COVID-19 547
Table 1. The Structure and Financing of Health Care in Israel, the United
States, Germany, and England
Provider Type Country Structure Payment
General
Practitioners
United States
Employed by private
groups, private or
public health centers
(∼50%)
Self-employed (∼50%)a
Employed: usually
reimbursed salary,
often tied to
productivity
Self-employed: mainly
fee-for-service (FFS)
England
Self-employed GP
practice partners
(>50%) or salaried
GPs employed by the
practice
Employed: salary
Self-employed: weighted
capitation +FFS +
pay-for-performance
Germanyb
Employed in health
centers, group
practices (∼17%)
Self-employed
(∼83%), mostly in
solo practice
Employed: salary
Self-employed: contact
capitation (per
quarter) +FFS
Israel
Employed by health
plans (60%)
Self-employed (40%)
Employed: salary +
capitation
Self-employed:
capitation based on
number of patients
enrolled
Outpatient
Specialists
United States
Employed by private
groups, private or
public health centers
(∼60%)
Self-employed
(∼40%)a
Employed: reimbursed
through a combination
of salary and FFS
Self-employed: mainly
FFS
England
Nearly all salaried
employees of the NHS
Able to work in private
practice
Employed: salary
Rates paid in private
practice much higher
than in public practice
Germanyb
Employed
(∼18%) in health
centers’ group
practices
Self-employed (∼82%),
mostly in solo practice
Employed: salary
Self-employed: contact
capitation (per
quarter) +FFS
Continued
548 R. Waitzberg et al.
Table 1. Continued
Provider Type Country Structure Payment
Israel
Employed by health
plans (20%)
Self-employed (80%)
Employed: mixture of
contact capitation
(80%) and FFS (20%)
up to a quarterly
ceiling
Self-employed: FFS at
higher rates.
Inpatient
Specialists
United States
Employees of hospitals
(perhaps half)
Others with admitting
privileges (right to
practice as an
independent
physician) at hospitals
Employed: salary +
productivity bonus
Admitting privileges:
FFS
England
Nearly all salaried
employees of the NHS
Able to work in private
practice
Employed: salary
Germany
Employees of hospitals
(95%)
Self-employed as either
attending specialist or
freelancer
Employed: salary +
bonuses
Self-employed: FFS
(attending specialists)
or hourly rates
(freelancers)
Israel
Employees of public
hospitals
Self-employed: 60%
supplement by
working in private
hospitals
Employed (at nonprofit
hospitals): salary
Self-employed at
for-profit hospitals:
FFS
Hospitals United States
Public (23% of
hospitals)c
Private nonprofit (60%)
Private for-profit (27%)
Mostly paid DRGs, some
paid per diem
Rates of reimbursement
vary by a factor of 3 for
the same DRG
depending on
insurance plan
Global budgets in 1 state
(Maryland)
England
Largely public
provision, only 3.3%
acute beds private
for-profit
Public hospitals largely
DRG-based
Some commissioners
using global budgets
Continued
How Health Care Systems Affected Providers During COVID-19 549
Table 1. Continued
Provider Type Country Structure Payment
Germany
Public (29% of
hospitals, 48% of
beds)
Private nonprofit (34%
of hospitals, 33% of
beds)
Private for-profit (37%
of hospitals, 19% of
beds)
DRG-based case
payment within global
target budget (with
end-of-year
adjustments for
exceeding the
budget/staying below
the budget)
Daily nursing fees
(depending on DRG)
Israel
Public nonprofit
hospitals (97% of
beds)
Private, for-profit
elective surgical care
and imaging only
Public hospitals: paid
per diem for medical
care and a combination
of per diem and DRGs
for surgical care under
a cap (upper and lower)
Private hospitals: paid
DRG-like payments
aAmerican Medical Association. Employed physicians outnumber self-employed. Press
release. May 6, 2020. https://www.ama-assn.org/press-center/press-releases/employed-
physicians-outnumber-self-employed. Accessed November 11, 2020.
bFederal Medical Register. Statistical information. Berlin, Germany: National
Association of Statutory Health Insurance Physicians; December 31, 2019.
https://www.kbv.de/media/sp/2019-12-31_BAR_Statistik.pdf. Accessed October
30, 2020.
cAmerican Hospital Association. Fast facts on U.S. hospitals. Chicago, IL: American Hos-
pital Association; March 2020. https://www.aha.org/statistics/fast-facts-us-hospitals. Ac-
cessed November 11, 2020.
Germany
Germany has a multipayer health system. Social health insurance (SHI),
administered through competing plans, covers about 88% of the pop-
ulation, and private health insurance (PHI) covers 10% of the popula-
tion (the rest are covered by special schemes). There is a mix of public
and private hospitals. Only about 30% of hospitals are public, but they
550 R. Waitzberg et al.
contain more than half of all beds. Even though almost 40% are pri-
vate for-profit hospitals, they have fewer than 20% of beds. The rest
are nonprofit hospitals.8Most ambulatory physicians are self-employed
and work in solo or group practices. Publicly and privately insured pa-
tients use the same providers, but the providers are reimbursed at higher
rates by private health insurance, particularly for ambulatory care. Social
health insurance–affiliated physicians receive fee-for-service payments
within a negotiated regional global budget. Hospitals are paid for the
care of both private and public patients using the same DRG-based pay-
ment system within global target budgets.
Israel
The Israeli National Health Insurance system operates through four
competing, nonprofit health plans. The prices of publicly funded ser-
vices and salaries of inpatient physicians in public nonprofit hospitals
are regulated by the government. Payments to health providers in the
public sector are usually based on budgets or salaries, and payments to
those in the private sector are based on activity (fee-for-service). First,
health plans receive their budgets through a risk-adjusted capitation
payment. Second, public nonprofit hospitals are reimbursed using per
diems in medical wards and a combination of per diems and case-based
payment mechanisms for surgical care. Hospitals operate under a global
budget cap that has both a floor (“lower cap” bound), set at 93% of
the previous year’s payments by each health plan to each hospital, and a
ceiling (“upper cap” bound). Third, the salaries for employed physicians
are established through sectorwide negotiation. Most GPs are salaried or
paid based on capitation, and most specialists contract with the health
plans and are paid based mainly on contact capitation (a capitation pay-
ment paid for a quarter if a doctor sees a patient in that quarter) and
some fee-for-service. Those who choose to treat privately funded patients
charge fee-for-service.9Almost all Israeli adults also purchase voluntary
health insurance, which funds services provided by self-employed spe-
cialists and private for-profit hospitals; these are not subject to regulated
prices. Private for-profit hospitals account for about 30% of all elective
surgery, as well as diagnostic imaging; they do not provide general med-
ical care.10
How Health Care Systems Affected Providers During COVID-19 551
Government Responses
In response to the economic toll of the COVID lockdown, as well as the
added costs associated with treating COVID patients, the four govern-
ments implemented specific programs aimed at preserving the financial
stability of health care providers.
United States
In the United States, initial assistance to providers (mainly hospitals)
took the form of advance payments (effectively loans that would be sub-
sequently repaid) from the Medicare program. The CARES Act (enacted
on March 27, 2020) included the Paycheck Protection Program, which
provided loans (that could be forgiven) to small businesses including
physician and dental practices.11 The Act’s Provider Relief Fund was au-
thorized to distribute funds equivalent to about 5% of national health
expenditures (NHEs) to hospitals and health care providers, including
independent practitioners such as doctors and dentists.12 Hospitals and
other Medicare and Medicaid providers received initial disbursements
of the Provider Relief Fund based on the prior year’s revenue.13 Later
disbursements focused on hospitals severely affected by COVID-19 ad-
missions, such as rural hospitals and clinics, skilled nursing facilities,
the Indian Health Service and tribal hospitals, and safety-net hospitals,
and also included providers who did not participate in the Medicare pro-
gram. The Provider Relief Fund’s allocation formulas, however, did not
assess existing access to capital, financial need, or revenue shares affected
by COVID-19 restrictions.2,14 Instead, funding flowed to wealthier hos-
pitals serving greater numbers of privately insured patients (whose treat-
ment commands nearly twice the average rate of reimbursement for
Medicare patients), as these hospitals saw the greatest absolute reduc-
tion in revenues due to the suspension of elective procedures.15,16
England
Between April and July 2020, England discontinued its normal payment
system for health care. Instead, all NHS hospitals and GP practices re-
ceived payment at rates based on the previous year’s average monthly
expenditures plus an increase to account for inflation.17 Between April
552 R. Waitzberg et al.
3 and May 19, 2020, NHS trusts could also claim additional COVID-
19–related capital expenditures up to £250,000 (about $324,000) with-
out prior approval.18 In addition, the UK government decided to write
off £13.4 billion (about $17.8 billion) of past debt of NHS trusts in
England, affecting more than 100 hospitals, in order to give hospitals a
“clean slate” to make investments in maintaining essential services and
responding to the COVID-19 emergency effectively.18
Pay-for-quality payments coordinated by the Commissioning for
Quality and Innovation have been suspended until April 2021.19 The
private sector, which generally provides nonacute specialist care, was
highly affected by the cancellation or postponement of services in the
first months of the pandemic, but the NHS quickly took over the extra
capacity. At the end of March, England passed a health services’ exclusion
order to the Competition Act 1998.20 This enabled the NHS to write
block contracts with the vast majority of private hospitals, including
their outpatient capacity, to make the capacity available for NHS pa-
tients. The NHS reimbursed private providers for services based on an
estimate of the full operating costs of care, a level intended to avoid insol-
vency without generating profits. The block capacity agreements were
intended to support the NHS with the provision of elective and planned
services and, starting in November 2020, will be replaced by a £10 bil-
lion contract for private providers lasting until November 2024.21
Germany
Toward the end of March 2020, the German government passed the
Hospital Relief Act to provide financial support for hospitals.22 The act
sought both to compensate revenue shortfalls due to decreased admis-
sions and to provide incentives and capacity to treat COVID-19 patients.
Hospitals received a per diem payment for empty beds, determined by
calculating the difference between the number of patients currently be-
ing treated each day and the average number of patients treated in the
previous year. Hospitals also received funding to expand their ICU ca-
pacity and to compensate for the extra costs of nursing care and personal
protective equipment. Ambulatory care physicians received compensa-
tion from the Association of Sickness Fund physicians if the revenue of
their practice decreased by more than 10% in a quarter when compared
with the previous year’s quarter. Furthermore, health insurers had to
How Health Care Systems Affected Providers During COVID-19 553
offer additional reimbursement to physicians for the costs of COVID-
19–related services and measures.
Israel
The Israeli government approved a program for COVID-19 relief to sup-
port hospitals (of New Israeli Shekels [NIS] 1.8 billion, about USD $550
million), which enabled them to hire more personnel to treat COVID-19
patients, assemble COVID-19 wards, and buy pharmaceuticals and pro-
tective gear.23,24 On April 15, 2020, a new (special) per-diem payment
code was established for COVID-19 patients.25
The Impacts on Providers
While it is still early to assess the overall financial impacts of COVID-
19 on health providers, in this section we use available data to describe
how providers have fared. These effects combine the direct effects of the
pandemic and those of the government interventions that have addressed
these effects. Our data are necessarily provisional, as assessments of the
pandemic’s financial impact are still under way in all four countries.
United States
Spending on health care services, not including pharmaceuticals,
dropped sharply in the early months of the pandemic.26 Hospitals and
independent physicians have been particularly affected by patients post-
poning or forgoing elective and ambulatory care. A series of Common-
wealth Fund reports on outpatient care during the pandemic found that
ambulatory care visits declined by nearly 60% in April 2020, began to
recover by mid-May 2020, and returned to pre-pandemic levels starting
in early September 2020.27 Some hospitals and independent physicians
were able to use telehealth services to stem a portion of their patient and
revenue loss. The percentage of overall visits conducted through tele-
health services peaked at nearly 14% in mid-April 2020 and has slowly
declined since then.27
As the revenue from health care services fell, the sector lost more than
1.5 million jobs from February through April 2020, a 9.5% decrease
554 R. Waitzberg et al.
compared to the same period in 2019. Job losses in early 2020 were
concentrated in ambulatory office–based settings (−1.04 million jobs
total; −523,000 jobs, not including dental care jobs), while hospitals
suffered relatively fewer losses (−122,000 jobs).28
Even though health care providers have been able to qualify for federal
financial relief, the distribution of funds has been inequitable. Small,
rural, or safety-net hospitals that typically operate with lower finan-
cial liquidity and narrower margins and are at a higher risk for closure
received less funding than did larger, wealthier hospitals.29,30 Although
small, independent providers were able to benefit from paycheck protec-
tion program (PPP) disbursements, certain specialties, such as pediatric
practices, have also struggled to obtain federal relief owing to the eligi-
bility requirements of Medicare payments.31
Most studies of COVID-19’s effects in the United States focus on the
first wave of the pandemic and the concurrent lockdowns. Estimates in
the peer-reviewed literature suggest a drop of $22.3 billion in hospi-
tals’ income from elective surgery that was canceled between March and
May 2020.32 From early March to late April, health spending overall
fell by 46%, ranging from 26.9% in inpatient care to 86.2% for ambu-
latory surgical centers.33 Industry reports suggest that hospital margins
took a severe hit in the first wave and that margins would fall by 5% to
7%,34 which represents a decline relative to last year by 4.9% exclud-
ing CARES Act funds and by 1.2% including these funds.35 Net losses
to primary care practices, assuming (as subsequently occurred) a partial
shutdown in winter, were estimated to exceed $15 billion.3
England
In England, NHS providers were funded through a revised payment sys-
tem adopted during the COVID-19 pandemic. Due to the early financial
response and payment adaptation in England, NHS providers did not
face substantially lower revenues. Private practice providers were unable
to perform expensive procedures that would account for higher revenues,
but they also received funding from the NHS to cover costs.
Record-level waiting lists resulting from postponements have
prompted more patients to pay for their treatment themselves or to
take out private health insurance.36 At the end of November 2020, only
68.2% of patients in England started their treatments within 18 weeks,
How Health Care Systems Affected Providers During COVID-19 555
where the target is 92%.37 Moreover, 192,169 patients have been wait-
ing more than 52 weeks for treatment, dramatically up from 3,097 pa-
tients in March 2020.38 Since the NHS had block-booked capacity from
private providers, privately insured patients still faced waiting times for
treatment, and some consumers have demanded refunds from private
insurance companies because of the difficulty in accessing services.39
Teleconsultation services have provided some relief in both sectors, but
particularly in NHS-provided primary care. In August 2020, 43% of
appointments were conducted over the telephone, and of these, 70%
were appointments with general practitioners.40
Germany
As elsewhere, German hospitals and physician practices saw a sharp de-
cline in elective procedures and ambulatory consultations in the early
part of the pandemic. Overall, hospital admissions dropped by almost
30% between March and May 2020, which led to a sharp decrease in
revenues from DRG-based payment. Hospitals’ revenues dropped by
an average of €2.5 Million from March through May 2020 as a re-
sult of less inpatient surgery.41 The same report also states that al-
most half of all hospitals expected to end 2020 with a deficit, and only
29% would end with a surplus. Expected deficits were most prevalent
(70%) in larger hospitals (>600 beds). These figures should be inter-
preted with caution, however, as they are based on a survey conducted
by the German Hospital Institute, owned by the German Hospital
Federation.
The protection mechanisms put in place by the government ensured
that this income loss would not threaten the hospitals’ financial viability.
In fact, the per-diem payment for empty beds was €8.76 billion to hospi-
tals between March and September 2020. Initially, all hospitals received
thesameamountof€560 per empty bed. This meant that small hospitals
with low case-mix indices, that is, those usually treating rather uncom-
plicated cases, received more money than they would have received under
normal conditions. The compensation for empty beds did not, however,
cover the costs for large teaching and other specialized hospitals. There-
fore, a revision of the compensation scheme specified that hospitals re-
ceive different amounts for empty beds, ranging from €190 to €760
per day, depending on the case-mix index. While this compensation
556 R. Waitzberg et al.
ended on October 1, the Hospital Future Law specifies that hospitals are
expected to negotiate with social health insurance funds regarding fur-
ther compensation for COVID-19 related costs and revenue shortfalls.
This means that overall, hospitals’ financial viability will be safe. In-
terestingly, while the effects of COVID-19 were different for small and
large hospitals, they did not differ by ownership (public, private, non-
profit) because all hospitals are governed by the same financing princi-
ples and treat mostly publicly insured patients.
Israel
Since payments to providers in the public sector are based mainly on
budgets, salaries, and capitations, these providers were somewhat pro-
tected from financial impacts of the pandemic. Israeli physicians faced
relatively limited decreases in outpatient care and limited loss of in-
come during the first wave of COVID-19. Salaried general practitioners
or those paid on capitation were not affected at all. Telemedicine allowed
most specialists to meet their contact capitation targets either based on
earlier visits or through virtual visits.42,43 The minority of self-employed
physicians without contracts with health plans (i.e., those who treat pri-
vately funded patients and charge unregulated fee-for-service) usually
did not have alternative virtual visits and lost income.
Public hospitals were also sheltered from the financial effects of
COVID-19 through the global budget cap floor that guarantees hos-
pitals 93% of the previous year’s revenue. In addition, a new per diem
tariff was created for designated COVID wards and was excluded from
the upper cap in order to reimburse hospitals for all COVID-related ex-
tra expenses. These protections did not apply to private hospitals, which
not only saw sharp declines in (elective) activity but also did not treat
COVID patients. Even after elective surgeries were resumed, patients
refrained from visiting hospitals.44
The Israeli Ministry of Finance has a policy of underfunding hospitals
and health plans, constantly expecting them to become more efficient,45
and as a consequence, they are constantly in deficit.46,47 During the first
half of 2020, the health plans’ deficit increased by only 5.5% compared
to 2019, most of it due to increased activity in hospitals owned by the
biggest health plan (30% of the acute-care beds), particularly for treating
COVID-19 patients.48
How Health Care Systems Affected Providers During COVID-19 557
Conclusions
The financial impacts of the COVID-19 pandemic on health care
providers have been more severe and have prompted more direct gov-
ernment assistance in the United States than in England, Germany, and
Israel. One important reason is that in the United States, except for
Maryland,49 almost all funding is activity based, so that declines in activ-
ity levels directly and immediately affect providers’ bottom line. In the
other three countries, although activity-based funding is still common,
a somewhat larger share of providers are paid through salary, capitation,
or budget mechanisms that provide both upside protection to the pub-
lic payers and downside protection to providers. In Israel, for example,
the combination of the use of telemedicine before the pandemic and the
contact-based capitation system protected specialists, whereas the floor
in the capping mechanism functions as a global budget that protected
hospitals.50
The nature and dimension of the effects generated through differences
in structure were amplified by the variegated scope of governmental
control. In the three other countries studied, public payers control, di-
rectly or indirectly, substantially more of the available provider capacity.
The NHS was able to change payment formulas and reroute the flow of
funds for nearly the entire system. In Germany, the Association of Sick-
ness Fund physicians were able to step in and provide rescue funding to
physicians who saw declines in visits. But in the highly fragmented US
health system, coordinated changes in payment systems in response to
COVID-19 were not feasible.
The governments of all four countries saw it as important to protect
providers from the financial consequences of sharp fluctuations in the
utilization of services. To some extent, this additional financial compen-
sation was part of a public health response: fiscally strained hospitals
would not be able to provide adequate care to patients with COVID or
the remaining non-COVID patients. This motive is clearest in England
and Israel, where supplemental compensation consisted primarily of ex-
tra funding for COVID-related needs (ICU infrastructure, more workers,
and personal protective equipment).
The decision to compensate health care providers directly for declines
in case-based payments also reflected the political salience of health care
providers. The political dimensions of the compensation decisions are
evident in debates over how funding should be allocated, including
558 R. Waitzberg et al.
whether private providers should be compensated in systems, like those
in England and Israel, that rely mainly on public providers, and how
funds should be distributed among hospitals.
These decisions played out differently across the four countries. Gov-
ernment actions to change payment systems or compensate providers
most naturally offered protection to providers who relied on public pay-
ments. Providers who relied more on privately insured patients ben-
efited less from public structural and compensatory mechanisms. In
Germany, where privately paid patients are not heavily concentrated
in the caseloads of a small number of providers, the public compensa-
tion mechanism sufficed, and no further actions were taken to protect
providers who relied on private payments. In Israel, private for-profit fa-
cilities catering to privately insured patients suffered substantial losses,
but the government did not step in to compensate them. In England, the
NHS effectively took over the private hospitals’ capacity altogether. In
the United States’ hospital sector, by contrast, the government explicitly
directed additional government funds to facilities that had negotiated
higher private prices. These politically driven decisions have implica-
tions for the future structure of the health system. It is unclear how the
private/public mix in the post-pandemic health system will look in Is-
rael, given the sector’s substantial financial losses, and in England, where
the NHS has taken over. In the United States, by contrast, concerns
have been mainly about the post-COVID viability of rural and safety-net
hospitals.
On the one hand, in ordinary times, payments based on activity or vol-
ume put payers at risk because the provider has an incentive to do more
and future expenditures are uncertain. On the other hand, providers are
protected because they are promised reimbursement for costs incurred.
In a pandemic, the risks are reversed. Budgets offer more protection to
providers, and those providers who rely most on activity-based payments
are at greatest risk. Beyond the threats to the providers’ financial viabil-
ity, the use of activity-based payment in a pandemic also sets up new
incentives in the context of the public health emergency. Activity-based
financing gives providers strong incentives to develop new ways to de-
liver services, for example, by rapidly expanding telemedicine services.
In contrast, rather than advocating for shutdowns that might reduce the
virus’s spread, providers who rely on activity-based payment may seek
to minimize public health threats so as to avoid the losses in income
implied by restrictions on elective procedures.
How Health Care Systems Affected Providers During COVID-19 559
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Funding/Support: Sherry Glied reports grants from Commonwealth Fund during
the conduct of the study.
Acknowledgments: We thank Hannah Tsuchiya for her valuable help with this
research. The paper builds partially on the content compiled in the COVID-
19 Health System Response Monitor (HSRM), a joint initiative by the Euro-
pean Observatory on Health Systems and Policies, the WHO Regional Office
for Europe and the European Commission (see www.covid19healthsystem.org).
We thank Juliane Winkelmann, Christoph Reichebner and Nathan Shuftan
for compiling data about Germany, Selina Rajan, Natasha Curry and Gemma
Williams for the data about the United Kingdom, and Amit Meshulam, Nadav
Penn, Gideon Leibner and Shuli Brammli-Greenberg for helping compiling the
data about Israel.
Conflict of Interest Disclosure: All authors have completed the ICMJE Form for
Disclosure or Potential Conflicts of Interest. Erin Webb reports personal fees
from the World Health Organization outside of the submitted work. Sherry
Glied reports that she is a member of the boards of Directors of NeuroRx and
Geisinger and reported personal fees from NIHCM, outside of the submitted
work. Ruth Waitzberg reports personal fees from Resource International LLC
and the World Health Organization, outside the submitted work.
Address correspondence to: Ruth Waitzberg, Technische Universität Berlin, Dept.
of Health Care Management, Str. des 17. Juni 135 10623 Berlin, Germany
(email: ruth.waitzber[email protected]).
