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Pivoting from the Pandemic: Hospitals Need to Fix Vulnerabilities, Pursue Opportunities

Analysis  |  By Jack O'Brien  
   March 11, 2021

The increased availability of vaccines and decreased rate of hospitalizations spells promise for provider organizations, but there are other pressing factors to consider.

One year after COVID-19 began its domestic spread, hospitals and health systems across the country are looking ahead to a vastly different landscape.

With vaccinations up and hospitalizations down, provider organization leaders are projecting a more optimistic path forward after a historically challenging year.

Related: MGMA CFO Analyzes Financial Impact of COVID-19 on Physician Practices

Still, healthcare organizations are not clear of the threats related to the COVID-19 outbreak which has killed more than 500,000 Americans, battered the bottom lines of hospitals, and altered patients’ expectations of care delivery.

As provider finance executives plot a path forward, several healthcare stakeholders spoke with HealthLeaders about how to rise from the pandemic and build on the changes the industry experienced.

No watershed moment for the end of COVID-19

David Wildebrandt is a member of Berkeley Research Group’s healthcare performance improvement practice and previously served as senior vice president of Baptist Health Care in northwest Florida and president of Baptist Hospital Inc.

Wildebrandt said health systems will still face staffing issues related to the pandemic going forward, specifically mentioning the challenge of establishing a ‘new normal’ for staffing benchmarks. He added that due to the likelihood of COVID-19 staying around even after vaccines are distributed, hospitals will also have to balance normal patient care with treating those infected by the coronavirus.

“In other words, [we’re] not having a watershed moment where we're done with COVID, but [instead] managing that patient population just like a disease population; so that when it does flex back up, the controls don’t just get thrown out,” Wildebrandt said. “I do think there's going to be some new dynamic staffing and census controls that have to get put into place. To me, that's one big thing I know that [provider clients] were getting back to.”

Related: Key Advice for Hospital CFOs Facing Next Stages of Pandemic

Forecasting the residual challenges facing health systems in a post-COVID environment, Wildebrandt highlighted the dilemma of meeting growth targets with less revenue available, suggesting that leaders will shift their focus to fixed costs.

“I think there’s potentially some dark days coming with health systems because they’re sitting on the cash from [CARES] Act funding, and we don’t know how much of that'll have to be repaid, but it's a little bit of a house of cards,” he said. “[Leaders] aren't investing that much; they were leaning on revenue gains, now we've [experienced] double-digit decreases on revenue, and it won't be back. [Revenue growth] will be 5% to 8% less when all the dust settles, and don't be fooled by the little resurgence of a couple of quarters; that'll level off. Utilization is going to be down and virtual care is going to be up.”

‘Continued financial stress’

Mike Lappin, a member of Foley & Lardner's transactions practice group and former Chief Administrative Officer at Advocate Aurora Health, Inc., told HealthLeaders that while there is optimism about the increased vaccination effort, healthcare executives should remain wary of “continued financial stress.”

“Even with the relief that Congress has provided, hospitals and health systems took a big hit in the past year. Especially those that are rural hospitals or those serving vulnerable populations,” Lappin said.

He noted that some of the lingering obstacles for provider organizations include high costs related to pandemic care and the normalization of patient volumes. Lappin added that leaders will have to monitor their expenses closely, especially as many systems have moved towards rolling budget processes to be nimbler and make changes quicker.

Related: Healthcare Financial Trends to Follow in the COVID-19 Era

Another potential consequence of the pandemic is increased provider consolidation, Lappin said, which could adversely affect smaller providers while larger systems with stronger balance sheets look for partnership opportunities.

He said there are several reasons for consolidation among hospitals, including geographic and revenue diversification, as well as technology and customer base acquisition, but emphasized that the main driver is scale.

“[Providers] need a larger base to be able to spread costs over, or revenues aren’t going to keep up and margins are going to go down,” he said. “If anything, the revenue trends are going down because government and payers are just not paying as much.”

Address areas of leakage

As hospitals emerge from the pandemic, leaders need to analyze the internal processes of their respective organizations and understand the value of discipline, according to Caroline Znaniec, a managing director in the healthcare practice segment of CohnReznick LLP, a New York­–based advisory, assurance, and tax firm.

Znaniec told HealthLeaders that the pandemic exposed key areas of leakage faced by some provider organizations, including vulnerabilities in revenue cycle, vendor management, and payer compliance. These common leakage areas, compounded by the additional financial pressures related to the pandemic, ultimately contributed to staff layoffs and, in some cases, closures.

“That [dynamic] ties into cost management and governance overall, where there just weren't tight controls on the spend, how processes came to be, or even [how] providers were trying to ‘be everything to everyone.’ [Providers] were not concentrating on where they best deliver care in terms of outcomes, cost efficiency, quality, or the value proposition,” Znaniec said.

Center on operating spend

Chris Creger is a principal in CohnReznick Advisory’s restructuring and dispute resolution practice and former interim Chief Restructuring Officer at Coordinated Health, a health system based in Allentown, Pennsylvania.

Creger said that if he were in a leadership position at a provider organization, one of his first actions would be to place an imperative around the operating spend.

He stated that systems focusing on operating expenses related to payroll, overtime, and administrative costs provide “quality attention to detail” that can impact the bottom line.

“[It’s important] to continue that same level of accountability and drive home at the unnecessary spend and focus on what's critical,” Creger said.

Related: UAB Health System CFO Reflects on 2020 Challenges, 'Silver Linings'

Time to recognize telemedicine’s value

Continuing to embrace telemedicine is a strategy that health system leaders should prioritize in the long-term, according to Tim Susterich, chief provider network strategy and contracting officer at HealthBridge Financial, Inc., a health insurance company based in Grand Rapids, Michigan.

Susterich said that telemedicine isn’t “the solution” but rather “a solution” for healthcare organizations, as leaders examine ways to bolster revenue streams and connect with patients in a way that builds trust and reliability.

He stated that while virtual care is convenient for patients, providers can also increase the productivity of services rendered if appointments are scheduled appropriately and conducted efficiently. Still, Susterich said this dynamic will also depend on payers sufficiently reimbursing providers for telehealth services post-pandemic.

“Overall, telemedicine will force the payers to recognize the value of [the service] and actually pay for it,” Susterich said. “We're now seeing [those payers] are instituting telemedicine visits as long as [providers] meet scaled-down requirements for it. [Providers] then get paid at what they would if it were an office visit or a hospital procedure. The reimbursement has been forced to come up to that level, which will then [encourage] the providers to want to [provide telemedicine.] I think the stars are aligned to move in that direction.”

Reexamine real estate opportunities

Despite the widespread adoption of virtual care services, healthcare executives must be mindful of the brick-and-mortar real estate holdings of their respective organizations coming out of the pandemic.

Colin Carr, CEO of CARR Healthcare Realty, a Colorado-based healthcare real estate company, told HealthLeaders that the healthcare real estate market is currently strong and has historically trended more favorably over the last five economic recessions than any other industry.

Carr said healthcare executives have plenty to look forward to as they analyze the physical footprint of their facilities, adding that providers could “get a better deal today” than would have been available prior to the pandemic. He cited the increased competition among landlords to secure tenants along with low-interest rates.

“If you could own any type of real estate right now, healthcare real estate is very desirable for a lot of investors and it's going to continue to be desirable,” Carr said. “You're not going to see medical office buildings just suddenly disappear, whereas you could see a retail strip center lose 30% or 40% of its tenants. That's very unlikely when it comes to healthcare because healthcare providers have to have somewhat of a home, even if they start moving more towards telemedicine.”

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

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