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4 Coronavirus Financial Considerations for Health System Leaders

Analysis  |  By Jack O'Brien  
   April 24, 2020

As the pandemic continues to unfold, hospital CFOs should pay attention to the impact of APMs and the potential issues surrounding medical loss ratio.

Hospitals and health systems continue to reel from the clinical, operational, and financial pain caused by the spread of coronavirus disease 2019 (COVID-19). 

Many provider organizations have struggled to obtain necessary medical equipment and personal protective equipment (PPE), most have canceled elective procedures, and some have even had to furlough hundreds or thousands of workers.

While the federal government has stepped in with over $170 billion in relief funding, hospital finance leaders still face a financial crunch that is likely to linger for months, if not years.

Related: Hospital Finance Leaders Brace for Operational Issues Related to COVID-19

However, there are still developments from the pandemic that should draw the attention of provider executives as they look for ways to improve their organizational operations and better prepare for the challenges ahead.

Below are four financial factors resulting from the ongoing outbreak that health system leaders should have on their radar.

1. The impact of APMs on delivering value-based care

Hospital finance leaders have focused on the widespread adoption of alternative payment models (APM) in recent years but now might be able to observe how APMs can assist organizations in a global pandemic.

Keely Macmillan, senior vice president of policy and solutions management at Archway Health, a Boston-based payment solutions company, told HealthLeaders that the pandemic has prompted a compelling question beyond concerns about what the impact will be on the adoption of APMs.

Macmillan said the ongoing outbreak is an opportunity to examine how providers participating in APMs continue to deliver value-based care during a crisis.

"Certainly all providers nationwide are facing challenges they could have never foreseen, but the ones who have participated in some sort of APM might be better prepared to provide care to their patients than providers who may not have participated in an APM," Macmillan said. 

Related: $75B Relief Bill Provides 'Much-Needed Lifeline' to For-Profit Hospitals

Providers participating in APMs such as accountable care organizations, Bundled Payments for Care Improvement, or the Oncology Care Model already have the benefit of telehealth waivers, according to Macmillan.

Providers that have been operating under these waivers, Macmillan continued, are likely to have already established the necessary infrastructure to support telehealth services ahead of the demand surge spurred by the COVID-19 outbreak.

2. Readiness planning on the way

Given the rarity of a global pandemic, it is difficult for hospitals or health systems to adequately prepare for the devastating clinical, operational, and financial ramifications on their own, according to Ronald Winters, principal at Gibbins Advisors, LLC.

Looking forward, Winters told HealthLeaders that he anticipates readiness planning will need to developed at the government level and be uniform across both regions and the entire U.S. Ultimately, he said, this cost will be borne by taxpayers, individuals, and companies. 

"The pandemic really shines a spotlight on how essential elective services are the economic well-being of hospitals," Winters said. "Irrespective of the current pandemic problem, as more of those services continue to trend to be performed outside a hospital, hospital leaders will face additional financial pressures, need to be even more efficient and scale will matter even more."

3. Finding liquidity right now

Having access to capital markets and sufficient liquidity has been a challenge most provider organizations have faced throughout the COVID-19 pandemic.

John Sandoval is CFO and COO at First Financial, an independent provider of equipment leasing and financial solutions healthcare providers, based out of Placentia, California.

Sandoval told HealthLeaders that most hospitals have been stuck in "triage mode" dealing with the influx of patients infected with COVID-19, which has not allowed leaders to properly focus on the liquidity crunch.

"Number one, we know that potentially, as we saw in the immediate days of the [Great Recession], liquidity dries up in financial markets," Sandoval said. "Number two, [providers] are going to need liquidity for operational purposes. And [finally], number three [providers] are going to need liquidity to get through it all, I say that as kind of a mid-to-long term view."

Related: Hospital EBITDA Margins Fell 13 Percentage Points Year-Over-Year in March

To remedy this pressing issue, Sandoval has suggested that provider executives examine opportunities to monetize medical equipment that they have already paid cash for.

Sandoval said some larger organizations have begun to put his advice into practice, selling and leasing back equipment in order to free up cash for the organization, while smaller health systems are only now considering such options.

4. Looming medical loss ratio

Given the widespread deferral of elective procedures as a result of the pandemic, there are significant implications for both payers and providers as it relates to the issue of medical loss ratio.

Doug Wolfe, founding partner of Wolfe | Pincavage, a Miami-based law firm, told HealthLeaders that medical loss ratio is one potential dilemma facing hospital executives that is not getting as much attention as other problems.

Wolfe said that since payers will not be paying the same number of claims that they otherwise would have, insurers will have a decision to make about the money that had been actuarially accounted for spending over March and April. 

Under medical loss ratio rules, Wolfe said, insurers will either have to refund unspent money to the employers and patients that purchase the insurance or find a way to spend that money on healthcare claims.

"There may be money that insurance companies want to spend to help, because it's good for the providers, it gets money to the people on the frontlines, or to the hospital systems that may be teetering on the brink because of the lack of services that they're able to perform," Wolfe said. "It could also help the insurance company not have to write refund checks to everybody."

Jack O'Brien is the Content Team Lead and Finance Editor at HealthLeaders, an HCPro brand.

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