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

Analysis  |  By Jack O'Brien  
   March 26, 2020

Beyond the immediate financial concerns, hospital CFOs must also figure out organizational issues spurred on by the coronavirus outbreak.

As the coronavirus disease 2019 (COVID-19) outbreak continues to worsen across the country, hospitals and health systems are at increasing risk for organizational challenges even as they face financial crises.

With more than 50,000 confirmed cases and 737 deaths nationwide by Thursday afternoon, according to the Centers for Disease Control and Prevention, the coronavirus poses an exponential threat to increase the stress on an already complex healthcare system.

To remedy the financial burden on healthcare, federal lawmakers have spent the past week negotiating plans to inject financial support for hospitals and the broader economy as well. 

On Wednesday, Department of the Treasury Secretary Steven Mnuchin and Senate leadership announced an agreement to pass a $2.2 trillion economic stimulus package, including a $117 billion bailout for hospitals. However, the House of Representatives, as of this article's publication, has not voted on the proposed deal.

Though the stimulus is a significant action, it may not be enough to stabilize health systems, according to Strata Decision Technology. Earlier this week, the company released a study that concluded that without a 35% reimbursement rate hike, many hospitals will exhaust cash flows within 60 to 90 days.

The study warned that without sufficient action from the federal government to relieve financial pressures related to the spread of COVID-19, hospitals will be forced to undergo drastic cost-cutting measures, including laying off "large numbers" of non-clinical workers.

Related: Despite Federal COVID-19 Stimulus, Many Hospitals Could Face Layoffs Within Two Months

Beyond the immediate financial issues, provider executives are also considering the changing dynamics of their systems' operations and the long-term ramifications of a post-pandemic world.

Four financial advisers spoke to HealthLeaders about the widespread effects of the COVID-19 crisis and what areas have consumed the most attention from health system leaders over the past week.

Lack of cash, unclear 'mechanism for relief' awaits

One of the most consequential operational changes that has caused financial reverberations on provider organizations has been the cancellation of non-urgent elective procedures. Several states and cities have canceled these surgeries and the Centers for Medicare & Medicaid Services released recommendations urging hospitals to comply until the pandemic subsides. 

Ronald Winters, principal at Gibbins Advisors, LLC, tells HealthLeaders that hospitals that have canceled elective surgeries could potentially face a substantial negative bottom line impact that may not be offset by the increased activity from COVID-19 patients.

"Rigorous cashflow projection has even greater relevance in the COVID-19 era and projecting receipts has added complexity due to the uncertainty: Lower volumes of elective services can be expected, but an unknown quantity of higher volumes of COVID-19 patients are also anticipated," Winters says. "With respect to collections, providers must also consider the impact of fewer insured patients, as well as assumptions around timing of collections, since the financial abilities of Medicaid and corporate payers will likely be strained."

He adds that while the federal government is likely to pass a large stimulus package soon, the "amount, timing, and mechanism for relief" remains unclear, which provider executives must then account for.

"We recommend developing multiple different forecast scenarios to enable organizations to seriously think through alternatives, so that whatever happens they can prepare contingency plans and be as prepared as possible," Winters says.

'All hands on deck'

Steve Wojcik, vice president of public policy at the Business Group on Health, says that over the past week, many health system leaders have shifted their focus from liquidity concerns to issues related to hospital operations.

To meet the unprecedented level of demand associated with caring for COVID-19 patients, coupled with the widespread cancellation of elective procedures, Wojcik says most providers are viewing this as an "all-hands-on-deck" situation for their clinical staffers.

Related: COVID-19 Outbreak Threatens Health Systems With New Financial Challenges

"[Provider organizations] are also looking to expand the allied health professionals wherever they can; they are planning ahead and saying, 'We need to make sure we've got the capacity in case we're in an area that's hard hit.

"I think within health systems, especially the ones that are more regional or national, they're looking at it from a more global perspective. [Leaders are] saying, 'This part of our system may be affected more, so if there are any resources we can allocate to that region that's been particularly hard hit, we need to start doing that,' " Wojcik says.

Wojcik adds that health systems are facing the financial crunch of dealing with a disease that creates a serious cost of care burden, currently without a sufficient federal reimbursement rate, and the elimination of a main revenue driver in elective procedures.

Getting up to speed

There is an evident split among hospital CFOs as it relates to managing the organizational challenges that have emerged from the COVID-19 outbreak, according to Chuck Peck, a partner at Navigant, a Guidehouse company.

Peck says he has been in communication with over 40 health system finance executives in recent days, in which they highlight issues around internal communication, operational design, and sustainable financing because of the spread of the coronavirus.

He says some organizations have 'command center readiness' to handle a crisis like the COVID-19 outbreak, while others do not have the same capabilities and are trying to get up to speed.

"It's basic stuff [to consider], 'How do you staff up a command center?', 'What kind of staff do you need in the command center?', 'What general staff leadership do you need?" Peck says. "[This goes] all the way down to thinking about things like having an employee health or wellness leader to deal with all the nurses, doctors, and technicians that are going out sick. Nobody's talked much about this beyond [saying], 'I really don't understand this.'"

Maintaining stability and preparing for next time

Richard Bajner, also a partner at Navigant, a Guidehouse company, tells HealthLeaders that his conversations with hospital executives have centered around the deteriorating financial situation, with some organizations reporting a cost impact at three to four times the monthly revenue generation.

Much like the Strata study projected, Bajner says that hospitals could face cost-cutting measures without adequate funding, though he anticipates outside action will be taken to stabilize the industry. 

Looking ahead at the post-pandemic landscape, Bajner says he expects the federal government response to be one that has "much longer lasting" implications.

For example, Bajner says he expects a "hardening" of the country's infrastructure, including investments in information technology, cybersecurity, ambulatory services, and physician outreach. He also says that like the country's move to achieve energy independence over the past decade, there will be a push to do the same with the healthcare supply chain.

"We're going to see some response related to our supply chain and being able to harden our supply chains domestically so that we have the resources available to our patients and to our providers in these types of needs," Bajner says. "We think that there's going to be funding and a federal response that, once we get through this current emergency, will have significant implications on the industry."

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

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