Financial Sustainability

4 steps to help healthcare organizations plan for operating in a post-COVID-19 environment

April 20, 2020 2:04 pm

The global coronavirus pandemic and the resulting economic chaos has significantly heightened the risk and uncertainty facing all healthcare organizations.

Hospitals and health systems are experiencing or anticipating rising patient volumes and supply and capacity shortages at a moment when their balance sheet strength is significantly reduced from just a month or two ago. Organizations looking to both survive the current crisis and thrive in an uncertain future must carefully prepare for both the short-term and long-term impacts of the pandemic.

Clearly, a significant part of the organization must be focused on the primary issue of addressing immediate and operational concerns amid the crisis. Other parts, however, should be focused on planning and preparing for post-crisis operations. Leaders must designate the resources to make that happen.

Responding to risk: A 4-step process

Healthcare organizations should take four basic steps to prepare.

1. Identify the full range of risks your organization is facing. Hospitals and health systems will be facing both environmental risks, affecting almost all organizations, and organization-specific risks. Certain risks will be short term, while others will play out over the medium to long term.

In the short term, the organizational focus will be on the supply chain, bed capacity and critical care capacity. In the longer term, there is the strong possibility of a broad recession that will impact all organizations, but at different levels depending on organizational circumstances. Hospitals and health systems with strong operating profitability and balance sheet strength will have more flexibility to weather a post-crisis economic downturn. Organizations that have not achieved such results, however, will be more challenged.

Identifying the risks is vitally important. Organizations may be tempted to ignore a whole series of risks because they think they could never happen, or because the potential risks are so great that the organization would be unable to absorb their impact. In the current situation, however, no risks can be ignored. Categories of risk that should be considered include:

  • Payment risk
  • Litigation risk
  • Consumer preferences
  • Technological change
  • Consumer risk

2. Quantification provides a fact base for decision-making. Organizations should use all the tools they have, especially financial planning software tools, to make it possible to discuss risks and impacts comprehensively. All identified risks must be quantified — from the minimal to the catastrophic — to ensure the organization is not handcuffed in its ability to plan for and prepare actions to be implemented.

The first requirement is to make sure that the base projections are up to date. For consistency, the organization should use its financial planning software for this purpose. The base projections should reflect year-to-date performance prior to the impact of the virus. Using that base, incremental impacts related to each identified risk and risk scenario can be layered onto the projections. By taking this approach, management not only can understand and manage isolated impacts, but also can start to group them together, creating scenarios that allow more meaningful strategies to be defined, as described in the third step below.

When quantifying incremental impacts, it also is important to be realistic about the range of each risk. For example, if the organization is eliminating elective procedures to meet COVID-19 capacity needs, how long might it need to do so? At what point might the organization realistically begin to bring that volume back? Three months? Six months?

3. Create a management plan to respond to each scenario. In the previous steps, management may have identified 20 or more individual risks. The next steps is to analyze scenarios, focusing not only on what would happen if each individual risk were to occur, but also on what the impact might be if multiple risks happened together. As management identifies interconnections among risks, these will start to emerge as potential scenarios. Management will want to plan for these scenarios, weighing both their likelihood and potential impact.

Plans must include specific mitigation steps and key indicators for their implementation. On the operational side, classic performance improvement solutions will be needed, including productivity and an enhanced focus on workforce optimization in a new operating structure. But the current situation also may present an opportunity for management to start looking closely at more difficult issues such as transforming or eliminating clinical variation or delivering care in completely different ways. The organization’s leaders should understand all available response options, without regard for internal political consequences, so they can focus on the organization’s long-term future.

4. Communicate the management plan and implement it as needed.  Communicating how management views responses to potential scenarios and the broader strategic context is vital. Leadership should take the opportunity now to communicate contingency plans to the board, the medical staff, management team and perhaps the community so everyone will understand specific responses to alternative situations if they must be implemented in the future.

Based on the foregoing efforts, it should be possible to implement plans relatively seamlessly under any scenario that occurs. The types, timing and extent of initiatives will have been defined thoroughly in the third step above. The timing for implementing a plan will be governed by monitoring and measuring against identified key indicators. When the organization runs afoul of an indicator, management will be ready to implement the specific response plan that related to this indicator. Currently, for example, organizations are projecting future cash flows. If those projections indicate lower-than-anticipated cash flows, the response would be to obtain additional liquidity sources now before the organization faces a liquidity crisis.

Indicators should be set to trigger not when the organization is in deep trouble, but well before that point, when trends provide evidence the organization is heading toward a potentially serious situation.

The importance of information

Providing information is vital to managing organizational behavior and moving the organization forward. By using the four-step approach outlined here, organization leaders can develop defined plans for meeting a variety of potential situations. If these plans have been communicated clearly and consistently, there will be few surprises when the plans are implemented, and the organization will be prepared to take the steps necessary to ensure long-term viability.


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