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Guest commentary: COVID-19 allows no time for hesitation among healthcare finance professionals

Column | Financial Sustainability

Guest commentary: COVID-19 allows no time for hesitation among healthcare finance professionals


The most dangerous fallacy about fighting the financial effects of COVID-19 is that it’s necessary to wait for the current uncertainty to clear before developing the financial foundation of an essential recovery plan.

We will be living with uncertainty arising from COVID-19 for an indeterminate time. We do not know how many COVID-19 patients will remain in America’s hospitals over the coming months. We do not know exactly when and in what volume elective surgical procedures will return. And we do not know the full state of the economic damage in the wake of COVID.

Facing this level of uncertainty, organizations must have the very best and most nuanced financial plans they have ever had, and the sooner they start developing those plans, the sooner they can regain financial control over their healthcare system.

Learn from the leaders

Leading healthcare organizations are not waiting for clarity. Even as they are in the throes of an unprecedented emergency response, they are also standing up a recovery process that charts a path to the post-COVID environment. In broad strokes, that process encompasses the following steps.

Assess the financial damage. Determine the volume and revenue loss resulting from COVID-19; the unbudgeted expenses; and the effects on profitability liquidity, and capital position.

Understand the gap that this financial damage creates. The financial and strategic plans of most organizations aim to close a gap between a current and desired financial performance. The financial damage of COVID-19 creates a new gap that is far larger than their original financial plans contemplated. And that gap needs to be precisely quantified.

Assess options for closing the gap. Organizations must figure out how to close this gap. For almost every organization, resources such as federal emergency funding or recovered lost volume and revenue will be insufficient to close the gap. Emergency funding will help, but it will not make hospitals financially whole, and hospitals will likely be caring for unknown volumes of COVID-19 patients for some time to come, which will continue to affect operations, non-COVID volumes and revenue.

Rework the strategic-financial plan. With the impact of COVID-19, most organizations will find their existing strategic and capital plans are no longer financially feasible. So in addition to doing the very best to close the financial gaps, hospitals will need to both revise their strategic objectives and look differently at their capital expenditures. This exercise requires real precision. Different scenarios for the virus will play out over the coming weeks and months. Organizations need to model the relationship between those scenarios and volume, revenue, strategies and capital plans. Such modeling can help organizations respond precisely to how the pandemic evolves and how both organizational revenue and expenses are impacted on month-to-month and maybe even week-to-week bases.

Speed and sophistication required

This is a numeric effort.

It requires demand modeling data analysis, and financial planning that is very likely more sophisticated than anything most hospital organizations have ever undertaken.

And this planning needs to happen immediately. Where there are options to close this new financial gap, organizations need to act quickly to determine what the options are. Where there are changes in how healthcare is delivered, organizations need to map out those complex changes as soon as possible. These efforts need to be part of a coordinated, data-driven recovery plan.

All this activity, all this assessment, all this planning and all these changes are built on a foundation of impeccable financial literacy.

Throughout this crisis, healthcare is all about action — doing whatever it takes to ensure that communities get the care and services they need. At the same time, getting through this crisis and back into financial balance requires the best possible recovery plan guided by a sophisticated and technically capable financial plan. You may feel overwhelmed by the crisis, but now is no time to let that stop you from moving deliberately forward. It’s the time for the best financial plan ever.

Resources

Check out the following resources designed to help hospitals develop financial plans a successful recovery from the impacts of the COVID-19 crisis

About the Author

Kenneth Kaufmann

is managing director and chair, Kaufman Hall, Skokie, Ill.

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