Jeff Lambert, COO
As much as COVID-19 has disrupted hospital finance, there is a future beyond today’s challenges. That future is impossible to predict with complete accuracy, but in the areas where disruption is guaranteed, accurate data and planning will be critical resources.
Moving into the post-emergent phase of this pandemic, hospital leaders have an opportunity to get ahead of some high-probability shifts they’ll soon be facing — and this will mean more than just maintaining higher levels of PPE inventory.
Cash flow will be king.
Thanks to cancellations of elective surgeries and drops in volumes for specialty clinics and primary care, solvency has become a pressing issue. The Ohio Hospital Association, for example, estimates that its hospitals are experiencing a monthly negative financial pandemic impact of $1.2 billion.
OIG reports damage to hospital cash flows across the country, and we’ve seen hospitals that previously sat on 300+ days cash-on-hand reserves fall to under 100. To improve solvency, management will need to closely monitor KPIs such as Utilization and Revenue on a routine basis. This will mean increased importance of everyone on the finance team using real-time data from a consistent data source and, preferably, one database as they build out response plans.
Margin analysis will become a necessity.
Cost accounting might just be the new telemedicine — a futuristic aspiration-turned-need almost overnight.
Thanks to emerging financial challenges, many hospitals may now be forced to take a new look at profitability on their major procedures. Unfortunately, many organizations are responding with band-aid approaches such as backing away from premium pay, cutting vacation, and laying off clinicians — none of which are sustainable or even beneficial in the long term.
As this pandemic unfolds, many providers will be pushed to shift their attention from volume-based reimbursement and being a local market share leader for utilization of individual service lines to a deeper acknowledgement of their margins — this means understanding case-by-case profitability. Making this shift takes a focus on cost accounting, an initiative hospitals can take advantage of today.
Elective surgeries will cause forecasting issues.
Right now, it’s impossible to determine how elective surgery volumes will be impacted by COVID-19.
People who should be going to the hospital aren’t, potentially impacting their conditions and the levels of treatment they’ll need when they do return. This dynamic is causing lost revenue estimated to be anywhere in the range of 40% to 60%, contributing to lingering and indefinite capacity issues. In the meantime, many organizations are staying afloat with grants (which require more precise internal reporting for agencies like FEMA), but also loans that will need to be repaid.
Strategic budgeting was challenging pre-COVID, but as things evolve, the ability to forecast future utilization and impact to the bottom line, as well as perform accurate budgeting at the case-based level, will be increasingly critical.
Telemedicine will take a front seat.
Even hospitals that acted early on telemedicine have found themselves pushed into a scramble to find physicians to support rising demand. Add on an expansion of telehealth services to Medicare beneficiaries, and the future is even less clear.
We don’t know whether these new telemedicine volumes will hold, eventually return to normal, or kick off long-awaited changes in remote healthcare, but hospitals now have to answer questions around how CMS allowances will impact square footage, and how future reimbursement and utilization will be impacted. Hospitals involved in at-risk contracts could be big losers due to lost volumes, making cost accounting a stark necessity across the board.
Labor becomes a challenge.
Labor might be the area hardest hit by the COVID-19 response. Nursing, for example, was experiencing shortages pre-pandemic, but now, some professionals in the field report feeling expendable. Similar reports are bubbling up on the physician side, with many possibly rethinking their careers. This opens up the potential for even more severe labor shortages, in turn bringing retention and productivity into focus.
If hospitals lose clinical staff, especially valuable tenured staff, they will be pushed toward expensive contract labor and growing productivity challenges, since productivity can’t simply be dialed up because of retention issues. Clinical-financial integrity will become an essential goal as these labor changes play out.
While these challenges are daunting, it’s not too late to act. Uncertainty in healthcare has been proven to be best met with smart, accurate planning, and the support of partners who’ve walked through industry changes before. That’s the support we provide at Oi, and we’d like to invite you to talk more about getting your decision support analytics up to speed as we step into a post-pandemic future of hospital finance. Schedule a conversation today.