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OSF Healthcare CFO: Expect M&A Activity, Continued Virtual Care Post-COVID

Analysis  |  By Jack O'Brien  
   April 21, 2021

Michael Allen, FHFMA, CPA, CFO of OSF Healthcare and chair of HFMA, details the Illinois health system's current financial standing and the near-term challenges facing the industry. 

During the summer of 2020, as the COVID-19 pandemic entered its second wave, Michael Allen, FHFMA, CPA, CFO at OSF HealthCare, a 14-hospital integrated health system based in Peoria, Illinois, told HealthLeaders that future revenues may be less than what they were prior to the outbreak.

"We may be facing a future where our revenue stream is less than it was pre-COVID," Allen said at the time.

Related: OSF HealthCare CFO: Future Revenues May Be Less Than Pre-COVID Levels

Much has changed in the world of healthcare finance since then: COVID-19 cases spiked during the winter, two more economic stimulus packages were passed, and three vaccines were widely distributed across the country

Allen recently spoke with HealthLeaders again to share his thoughts on how the pandemic has affected hospitals and health systems nationwide, as well as what financial and strategic trends should be top of mind for finance executives.

Financial status update

According to Allen, OSF faced a projected 10% decline in revenues due to the pandemic but luckily was able to mitigate some financial challenges thanks to support through the CARES Act. Still, the federal funding did not entirely make up for the shortfall, Allen said, so OSF cut approximately $105 million from its cost-load.

OSF finished its fiscal year on September 30 near break-even, and Allen added that OSF's bottom line was strengthened by improved market performance and a pause in capital spending.

At the end of 2020, OSF’s patient volumes rose but also coincided with a rise of COVID-19 cases. According to Allen, OSF was treating 450 patients infected with COVID-19 per day at the peak of the third wave, though he noted that the organization experienced a minimal flu season due to social distancing measures.

He said volumes slid in January and February of 2021, adding that while there has been a rebound in patient volumes, these are still below pre-COVID levels across most care sites.

“It’s increasingly challenging [to look forward] because we keep rolling our view of the future forward,” Allen said. “When we talked last summer, we had a viewpoint then, and now it’s different. Back then, I was worried about when the 'stall' was going to happen when we were going to stall below pre-COVID levels. That’s where I think we are now.”

Allen said the future looks unclear and OSF is taking a cautious approach to the road ahead, focusing on ensuring the organization and its infrastructure are at the appropriate levels to handle the care demands of its patient population.

He noted that some projects are moving ahead after the organization paused them last summer, though he said these are advancing tentatively due to uncertainty of what the new immediate future is going to look like because of changing patient patterns.

“I still have the view of forecasting to the future to make sure we anticipate rather than react,” Allen said. “We’re now building forecasts that have stress tests built into them; we’re putting out forecasts that look at it from a somewhat negative scenario and what we as an organization have to do to adjust and get through that.”

While it may seem like common sense now to forecast from a critical lens, Allen noted that financial leaders learn how to be more thorough in evaluating their organizations while persevering through an extended crisis like the pandemic.

Prospects of virtual care

Allen said that telehealth services, which experienced mainstream success this time last year, are “here to stay,” but noted that the utilization rates for virtual care services have declined from the historic highs of spring 2020.

In the absence of in-person treatment, the health system established multiple ways to deliver care virtually during the start of the pandemic, according to Allen, before OSF consolidated its offerings to a single platform. He added that maturing the platforms as well as having patients and providers embrace the virtual care services was crucial to the success of the operation.

Related: How OSF's 6 Digital Approaches Handle More than 50,000 COVID Encounters

OSF, like many provider organizations, has reexamined the physical footprint of its care delivery sites in the wake of the pandemic and popularization of telehealth services, though Allen said that is more of a long-term consideration than an immediate switch.

“I think remote patient monitoring, hospital-at-home, and other models like that are here to stay. That doesn’t change our hospital footprints next year, but it may change the hospital footprint in how we deliver care and what buildings we need in the future versus now,” Allen said.

Like telehealth services, Allen stated that remote patient monitoring and ‘hospital-at-home’ programs are going to be around for the foreseeable future, but there is one outstanding question: how do health systems ensure quality maintains pace with the convenience factor of these tools?

He added that the embrace of telehealth might also boost the appetite among provider organizations to pursue risk and value-based contracts because of the ability to shift care and treatment to lower-cost settings of care.

OSF has nearly 25% of its patients under some sort of risk-based contract, according to Allen. 

Leader speaking to leaders

Allen, who also serves as chair of the Healthcare Financial Management Association (HFMA), said that CFOs are typically ‘bearish by nature’ and that he is taking a measured approach to the future.

This includes waiting for how provider organizations will emerge from the pandemic after receiving hundreds of millions of dollars in CARES Act funding that helped to mitigate, but didn’t fully cover, losses associated with the pandemic.

He noted that the influx of stimulus spending has been a boost to the overall economy but added that there could be a “shakeout” once federal financial assistance comes off the books, especially in the next year or two. He pointed to smaller, community hospitals and health systems that could be the target of industry consolidation in the next phase of the recovery effort.

Related: Artificial Intelligence: 5 Considerations for Health Systems

“I think [M&A] is going to be done smarter and better by health systems going forward because we've all been through the M&A that worked or didn't work, so hopefully, whatever happens, we will have a better, more rational health system,” Allen said. “I think there's some hopefulness, but yet there's also some concern because there are headwinds coming, the overall cost-effectiveness of health is going to get back to the forefront, and then we [also] have a new administration that probably has a different view of what the healthcare economy and healthcare delivery should look like than the last one, so we'll have that pay attention to, that, too.”

Allen added that another factor to consider is how COVID accelerated some projects that OSF had been working on prior to the outbreak and what changes arise in the near-term future. This includes reexamining where the organization’s fixed costs are and how to remain more resilient in the face of another potential crisis.

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


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