Hospitals Save Our Lives. How Do We Save Them? Part Two

Part Two of a Four-part Series

Where's the Cavalry? 

Exploring all the ways hospitals will get back on firm footing

In the COVID-19 emergency, addressing one urgent challenge creates another. The rapid pivot in all hospital operations to treating an unprecedented health crisis is now creating an unprecedented financial crisis. It will come on fast, and it could cripple the core of America's hospital systems during and long after the pandemic is over. Kudos to Modern Healthcare for raising the alarm early in the crisis.

So, what can be done to protect hospitals’ financial viability in the coming months? Here are a few possibilities — some macro and some specific to individual organizations — and one real solution.


How will the federal stimulus help?

While the federal stimulus package provides funding streams explicitly for healthcare providers and expands accelerated Medicare payments, it may not be enough. $120 billion was authorized for hospitals in the first stimulus package, with indications from the administration that those dollars can be used to cover the cost of treating uninsured COVID patients. This is helpful, without a doubt.

The $500 billion corporate COVID-19 relief fund may help, but comes with strings attached. As the law is written, reports Modern Healthcare, health systems and hospitals that have not received “adequate” relief from other loans in the stimulus bill could qualify for more funding by incurring losses that jeopardize their businesses. These businesses would be required to freeze compensation for all employees making more than $425,000 and cut the pay for employees making more than $3 million.

Even if an additional stimulus is approved in the future, we cannot assume these dollars will be adequate in this crisis. Losses due to the pivot from key services to battling COVID-19 will simply be too steep for many hospitals and health systems. Even those organizations not treating a large volume of COVID-19 patients have paused and lost the indispensable revenue of elective surgeries.


What are health plans doing to help?

So far, America’s health plans have stepped up with, well, not much. Yes, offering free COVID-19 testing and waiving patients’ out-of-pocket costs for COVID-19 treatment is helpful. Yet the vast majority of hospitalized COVID-19 patients are covered by Medicare, given their age, not private commercial insurers. Meanwhile, health plans are experiencing a massive reduction in spending from all canceled and delayed elective surgeries. The hospitals’ losses are the health plans’ gains.

The American Hospital Association, reports Healthcare Dive, is urging large private health insurers to expedite payments to providers and ease administrative burdens on hospitals for the duration of the pandemic. AHA would also like payors to move toward periodic interim payments to providers rather than payments on a claim-by-claim basis. Health plans are pushing back, saying they've already freed up time and money for providers due to the crisis.  

Whether health plans step up to help hospitals or they allow the taxpayers to foot the bill, it’s safe to assume that they will not voluntarily solve the problem. We will explore what individual hospitals and health systems can do to improve their managed care contracts in a separate blog post.


Can cost reductions help?

While no organization ever cut its way into prosperity, we may see hospital C-suites tempted to cut costs to make up for COVID-19-related losses. If they do so, they’ll run up against two realities. First, most health systems have already completed multiple rounds of aggressive cost-cutting. The low-hanging fruit is long gone; the high-hanging fruit may be picked over, too. Second, slashing labor costs — laying off nurses and physicians, the very heroes the nation is celebrating at this moment — will cause massive damage to their brand. Reducing spending on marketing will eliminate the primary tool needed to drive growth and rebuild surgical volume after the crisis. Some targeted cuts may make sense, but hospitals’ financial crisis will not be solved through cost-cutting at any level.


How about investment income?

Since the crisis began, stock market losses have wiped out about 30-days worth of cash for the average U.S. hospital. Advisory Board reports that, “changes to the economy threaten the ability to cross-subsidize patient care with non-operating revenue…A faltering economy jeopardizes not only investment portfolios, but also health systems’ fundraising potential. Even with regulatory action, the pandemic is likely to threaten the medium-and long-term financial sustainability of hospitals.” Let’s assume Wall Street isn’t going to save us either, at least in the short run.


Can philanthropy close the gap?

Philanthropy is being hammered by the same dynamics as hospital investment income. The stock market crash, 16 million unemployed, and a teetering economy will not increase the largesse of donors.


The way out: rapid recovery of surgical volume.

Rebuilding surgical volume is the only solution an individual hospital or health system can own and control—but they must plan now to be first movers in a post-COVID-19 world. These forward-thinking hospitals will go to market armed with aggressive plans to rebuild elective surgical volume quickly. They will make operational changes needed to accommodate an influx of patients with deferred care into their ambulatory surgery centers and operating rooms. Scheduling must move to seven days a week, 18- or 24-hours per day. Only volume will increase margin. In addition, splitters may concentrate their surgical volume at a single hospital, and market share could be reset in certain communities.

It may be a short-lived opportunity, however. A rapid return to scheduling deferred care and rebuilding surgery volume is also urgent in order to beat a potential second wave of COVID-19 in November or December. Delay preparations and be slow to market, and the chance could be lost. As Ron Rittenmeyer, Tenet’s CEO, said in Becker’s Hospital Review, "We believe strongly that we will be able to gear up as soon as we are released to do that, and we will hit the ground running."

We urge every hospital and health system to do the same. There’s no time to waste.

Check out part 3 of this blog series.

April 13, 2020
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