Finance and Business Strategy

COVID-19 is the deflection point for new health system flexibility

April 27, 2020 9:54 pm

Beyond being a crisis, COVID-19 is a wake-up call for integrated health systems.

As the new post-virus realities unfold, health system leaders will begin a broad-based reassessment, which likely will require them to place a higher premium on flexibility.

Healthcare systems are flexing beds, staff and other resources now to respond to COVID-19.  Their leaders are making difficult decisions. And they have begun financial replanning. But this is only the first of what likely will be several waves of adjustments required after COVID-19.

In theory, integrated health systems can make adjustments faster and more effectively than other provider organizations. Yet the past responses of integrated systems to new situations have been mixed: There are examples of great flexibility, and other examples of “being tone deaf” to emerging problems and new opportunities when leaders were allowed to get too far removed from where and how the providers were delivering patient care. The future environment after COVID-19 will not be kind to organizations that cling to such inflexible structures. 

The new normal

When integrated health systems were formed, their components — e.g., hospitals, medical groups, other ancillary organizations and payers — were well understood. So were the opportunities for improved performance, such as reduced transaction costs and economies of scale in supply chain, and for integration of leadership, with joint planning and implementation. Leaders knew where to reach for the levers of success.

With the arrival of the COVID-19 crisis, however, healthcare leaders have less certainty around operations. Questions abound: 

  • How much capacity will be required for COVID-19 patients? 
  • Will there be more than one wave?  
  • Will telehealth fall back, or will it be re-engineered and continue to grow after the crisis? 
  • What is the new role for artificial intelligence?  
  • What other changes, initiated during the crisis have long-term potential after the crisis? 
  • As healthcare becomes a still larger part of the nation’s GDP, will social pressure intervene to force changes in payment structures?
  • What new financial scenarios need to be modeled?

The new normal in healthcare seems likely to require not a single adjustment, but a prolonged series of adjustments. Moreover, each adjustment will result in successes and failures and will be reflected in the costs of doing business.

A new baseline

Under almost any scenario, the following financial factors appear likely:

  • Healthcare managers will need to plan a bigger margin, allowing for more rounds of adjustments and for the probability that some will not be successful.     
  • Even higher levels of uncertainty in other parts of the economy than in healthcare likely will mean more disruption in employment, worse payer mixes and sicker patients due to less attention to wellness. 
  • The overall cost of capital will reflect repricing of the new forms of risks.
  • The gap between successful and unsuccessful health systems will increase, possibly leading to more attention to consolidation, although more stable health systems may raise the bar before consolidating with those in trouble.
  • Innovative health systems may need to re-prioritize their next innovations to ensure more financial flexibility.
  • Many healthcare caregivers may be widely recognized for patriotism in ways formerly reserved primarily for war veterans.
  • The healthcare safety net will be reevaluated.

Where and how new flexibility will be needed

Amid current uncertainties, healthcare leaders should prepare for flexibility that may be required. Healthcare has a wealth of analytical talent for activities such as scenario planning, market analysis, decision modeling, behavioral analysis and cost-benefit analysis. A portion of this talent should be redeployed to ask new questions that would enable more flexing of financial, human and other resources.

To begin, new types of information will be required. For example, we need registries of patients who have recovered from the virus.a Because patients who have recovered can move around more freely, these registries might be helpful in understanding the potential for herd immunity, where immunity in a group is sufficient to prevent the disease from spreading. Willing patients in this group also could provide their plasma to help treat others.

Information sources also need to be reevaluated to protect against incorrect and tampered with sources. Forecasting approaches also need to be reassessed — for example, to avoid approaches that involve multiplying several numbers, each with a large potential for error, resulting in forecasts whose potential for error is unacceptably large. 

Here are other examples of broad-based reassessments and the questions they would address.

  • Ambulatory cases. Is there a pent-up demand for ambulatory cases? How best can we ramp back up?  Should some care pushed to telehealth continue as telehealth?
  • Telemedicine. What are the differences in telemedicine usage and effectiveness — by socioeconomic characteristics, by diagnosis, by how it is promoted and supported? How can its use be improved in the long run?
  • Elective cases (numbers, costs, outcomes). What is the most effective strategy to bringing back these cases? Will integrated health systems change how they plan for elective cases or how they design facilities to allow for a greater degree of design flexibility?
  • Physician flexing. Is there a cost-benefit argument for more cross-training among ambulatory internal medicine, hospitalists and ED physicians, or for supporting a core of part-time, semi-retired physicians?
  • Electronic health record (EHR) leveraging. Is this an opportunity to expand patient use of the EHR portal, both to improve outcomes and lower costs?

These examples represent only the first wave of multiple waves of analyses.

Flexing partnerships, processes and leadership approaches

Flexibility will be required in readjusting partnerships, processes and even leadership styles. 

Integrated health systems have a long history in this area. For example, Kaiser Permanente has more than 20 years’ experience in designing contracting corridors (reflecting the ups and downs in utilization) with non-Kaiser hospitals and physicians. Similarly, children’s hospitals have extensive experience renegotiating changes in processes and support from medical schools and academic medical centers.  

The questions addressed when renegotiating partnerships are usually straightforward: 

  • What has changed for each side? 
  • Are both sides damaged by continuing the current agreement?  
  • If only one side is affected, is the change so large that it requires a renegotiation? 
  • Does each side still respect and trust the other?  
  • Can each side visualize a new win-win agreement?

Building in flexibility

Healthcare traditionally has been among the most stable and dependable sectors of the U.S. economy, and the basic premises of building an integrated health system have been in place for more than 20 years.  

It is possible that, once the COVID-19 crisis has ended, we will find the future is not dissimilar to the past. More likely, we will see multiple rounds of change arising from our response to the crisis. This will be an important deflection point. Building in flexibility, across several levels of the organization, will likely be a new critical success factor. 


a. In Wuhan, the Chinese government is using color codes on cell phones to indicate those who have recovered (Fifield, A., “As Wuhan reopens, China revs engine to move past coronavirus. But it’s stuck in second gear,” The Washington Post, March 31, 2020).

Author’s and editor’s note

Dean C. Coddington, MBA, longtime coauthor of hfm’s Integration column, died on Feb. 20 at age 87. Coddington was a widely published author and industry thought leader on healthcare integration and related topics. He received his MBA from Harvard Business School and was a senior consultant for McManis Consulting in Denver.


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