Editor’s Note: The following article, originally published on April 20 by the Healthcare Financial Management Association, is part of an ongoing series offering our strategic advice and expertise on what healthcare industry stakeholders should do in response to the rapidly evolving novel coronavirus (COVID-19) pandemic.
Amid the COVID-19 pandemic, many health system Chief Financial Officers (CFOs) are immersed in a struggle for their organization’s near-term survival. Looking more than a few weeks ahead may seem impossible or even foolish. Yet forward-thinking CFOs will begin transitioning from managing immediate challenges toward envisioning longer-term opportunities to strategically and financially reset their organization.
The early stages of pandemic saw many strongly held beliefs of the U.S. healthcare system obliterated, while long-awaited innovations were accelerated. Telehealth, digital apps and tools, and even drive-through testing sites are clear examples that our slow-to-adapt healthcare system can change quickly, with immediate improvements in safety, convenience, experience, and cost. CFOs should now consider how to seize upon this momentum and make these changes permanent, while championing additional changes that may have been untenable in the pre-COVID-19 world.
Over the next several months, CFOs should take critical actions to address human capital strategy, revenue recovery, cost reduction, and capital investment. Yet they also must approach this task with a new mindset.
Human Capital: Make Hard Choices Smart Choices
As hospitals deal with COVID-19’s huge financial impact, their CFOs must ensure they make hard, but also smart, staffing choices. Many organizations, faced with financial distress, take top-down, blunt-instrument approaches. For example, one organization recently cut nearly 40 FTEs, spread evenly across departments so everyone would “do their part.” However, that meant positions in many growing, profitable revenue-generating areas were cut, hamstringing the organization and ultimately forcing it to refill nearly half the eliminated positions.
CFOs who empower their organizations to make well-informed and targeted decisions will avoid this kind of mistake. They will identify and protect the roles hard to replace in the post-crisis labor market, approaching these roles not as costs, but as investments — almost akin to capital investments — that enable important services, such as elective surgery and scheduling. Such roles are likely to be essential in any return to growth.
Human capital decisions are especially complicated now, because they must both manage the immediate disruption on the workforce wrought by COVID-19 and leave room for sustaining and/or rebuilding it for the future. Many clinicians will feel long-term health effects from the pandemic. Some will choose to exit, and some will even die. A new class of rising clinicians will have their education disrupted. These implications for the workforce are potentially traumatic, but CFOs must find opportunity in tragedy. The answer is not to struggle to rebuild the old workforce, but to shape a new workforce better suited to healthcare’s future. This imperative means accelerating the shift to staff-efficient care models, maximizing contributions from all clinical and non-clinical staff, extending reach with digital tools and promoting patient self-management.
This kind of transformation will be possible only with the direct engagement and collaboration of individuals throughout the organization who know what skill sets are needed and how to develop them. Going forward, finance leaders also need to embrace a vision foreign to many of them: Empowering front-line clinicians and staff with transparency to understand the full scope of considerations influencing each decision. Such an approach frees employees to make decisions that are optimal for the organization and has been shown to reduce their anxiety while improving enterprise performance.
Revenue Restoration: Plan the Recovery Path and Reset Payment for New Care Models
Elective care seems unlikely to return before late summer, although timing will vary, particularly in regions that are not expected to experience a surge or have yet to experience and acceleration in COVID-19 cases. Rather than coming back in a rapid bolus, the return is likely to be spread widely over the last part of 2020 into early 2021.
A near-term decline – potentially a substantial one – in both revenue and margin seems inevitable. Organizations, therefore, should immediately begin work on three critical steps:
- Developing a 90-day plan to aggressively restore revenue
- Building new capabilities and alternate payment models to unlock new revenue sources
- Ensuring aggressive supply chain management to mitigate risk of recovery delays due to lack of inconsistent supply of PPE and other key supply items
These steps will require input from clinical teams, service line and department leads and others throughout the organization who have insights and experience needed to guide these efforts.
Elective procedures. Recapturing and restoring elective volumes, the lifeblood of health systems, will be the essential first step on the road to recovery. Yet not all this volume will return, and patients who do return will not simply arrive at the door. Even patients who have maintained their insurance and financial stability will remain wary of entering a clinical environment.
An additional complicating factor will be defining elective and non-elective cases, or urgent versus non-urgent procedures.
Bringing revenue back in the door will require contributions from many in the organization:
- Physicians will need to make time to personally reach out to patients, keeping them engaged and reassuring them that they will be scheduled as soon as possible.
- Advanced practice providers (APPs), nursing staff, and lab and imaging technicians will be needed to efficiently and effectively re-prep these patients.
- Flexible staffing models will be necessary in order to “catch-up” on backlog while also enabling surge for potential future waves.
Access and capacity. Improving capacity and addressing the access issues that have plagued health systems in normal times will be particularly important. Expanded hours, including evenings and weekends, and broadened use of telehealth especially in areas such as behavioral health will be required. Moreover, the same creative repurposing of staff that is proving necessary today to manage the volume of COVID-19 cases may soon be required to manage the return of elective care to avoid overtaxing already exhausted staff. Creative solutions will be necessary. Using contract and premium labor to increase capacity post-crisis is undesirable from a cost perspective, and these options may not be available.
COVID-19-free facilities. Retrieving volume will also require creating credibly clean facilities. It may not be feasible to reopen hospitals fully to elective procedures in the intermediate term, but leadership teams should already be exploring creation of clean sites free from COVID-19 care and safe for vulnerable patients. A separation between designated COVID-19 sites and clean facilities may become the “new normal” if COVID-19 proves to be an endemic seasonal concern over the next three years. Designating specific care sites for surges of infectious patients while ensuring other needed care can be delivered at designated clean sites may be necessary.
Payment issues. Financial leaders also will need to quickly engage their payer partners to reevaluate payment relationships, given all that has been revealed in this crisis. This process should begin with discussing how formal emergency funding mechanisms could be created to ensure the integrity and continuity of the system. The potentially endemic nature of COVID-19 makes it in both providers’ and payers’ best interests to establish contingency plans for potential future outbreaks.
Telehealth. Providers and payers should collaborate in developing an economic model that can sustain — and even accelerate — the adoption of telehealth and digital care channels, now that both consumers and providers have seen the value of these modalities. For health system leaders, negotiating a solid and attractive payment plan could pave the way for a fundamentally different and improved long-range plan. But payment is the starting point for any telehealth strategy, so engaging payer partners and arriving at a consensus economic paradigm is essential.
Cost Reduction: The Easy Way or the Right Way
Costs are spiking as health systems scramble for hard-to-find equipment and personnel to safely care for COVID-19 patients. The old, top-down approach where departments are asked to hit broadly drawn targets with little regard for the departments’ longer-term strategic value is no longer tenable, because it risks imposing cuts that will cripple staff morale and effectiveness. It also could lead to shutting down critical infrastructure functions, leaving the health system unready to turn the revenue spigot back on long-term. A smarter approach is to dig deeper to eliminate sacred cows that place a drag on the bottom line and to find broader operating-model changes that improve cost efficiency.
Common sacred cows are the comanagement agreements and other partnership structures that may once have made sense but are now million-dollar albatrosses for many health systems. The same applies to lagging ambulatory assets. System leaders should be transparent with internal stakeholders and external partners: COVID-19 has made it clear that routine approaches and sacred cows need to be reevaluated and the focus shifted to the sustainability of the health system itself.
In the long term, this pandemic has created an opportunity to improve the cost structure. Health systems will need to spend more on some aspects, including digital health infrastructure, increased stockpiles of critical equipment and even, in some cases, capabilities to manufacture or refurbish critical equipment. For example, several U.S. health systems and medical centers have partnered with local engineering schools and manufacturers to 3D-print masks.
Health systems also will need to reduce spending. Ironically, despite the current desperate demand for bed capacity, one lesson from the crisis for both consumers and providers is that significant amounts of care can occur in lower acuity settings and even at home. This reality may reveal opportunities to shed expensive real estate or downgrade facilities, while, of course, ensuring facilities can expand their capacity rapidly when needed.
Capital Investment: As You Rebuild, Also Reshape
Much capital investment is on hold as resources are necessarily directed elsewhere, but when it resumes, CFOs can use the collective wisdom of their organizations to invest in the post-COVID-19 future.
Over the next several months, for example, small independent physician groups are likely to face significant pressure. Even with relief like the CARES Act, with nonexistent revenue, such groups will continue to burn through cash on hand rapidly and look to be hired, acquired or otherwise supported by health systems. CFOs should gauge what support is needed to maintain a functional healthcare landscape post-crisis, but they also should seek input from their clinicians and business development staff in assessing the value of those small physician groups both in the current environment and under a range of post-COVID-19 scenarios. This is not the time to abandon critical physician partners to ruin, but it also is not the time to overinvest in practices.
As large capital projects come back online, system leaders should ensure the new infrastructure will maximize revenue and flexibility in the post-COVID-19 world. They could build infrastructure, for example, that supports wide-scale data sharing, collection and analysis, tools for remote patients and other capabilities that de-emphasize brick and mortar sites while opening up access and reducing leakage. Upgraded infrastructures should be designed to allow portions of facilities to be easily sequestered during future outbreaks and to efficiently expand capacity, as needed.
There will likely be well-meaning pressure from the public and even political sources to build more capacity in preparation for future pandemics, which is a largely unsustainable approach. CFOs should engage community members and leaders to explain why, for example, they are focusing on creating flexible capacity and even acute care at home capabilities instead of building new facilities.
Across all these dimensions, CFOs should keep an eye on other healthcare system stakeholders. Private equity firms, health plans, technology companies and others will be learning from their own disruptions and planning their own moves in the post-COVID-19 world. CFOs should develop plans for how to respond to various scenarios, including new competition, partnership opportunities, and acquisition attempts from a variety of angles.
This pandemic crisis ultimately will end. But without a new operating model, supported by an organization filled with empowered staff, it will merely roll into a new operational crisis as health systems remain crippled in a post-COVID-19 world. Now, not in months or even weeks, is the time to begin long-term changes to avert that crisis.