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Beyond COVID-19: A guide to economic recovery for health system CFOs

How To | Financial Sustainability

Beyond COVID-19: A guide to economic recovery for health system CFOs


From left to right: Deirdre Baggot, PhD, RN; Bruce Hamory, MD; John Rudoy, PhD; Dan Shallenbarger

It is not too soon for hospital and health system CFOs to prepare their organizations for COVID-19 recovery phases, but making the right decisions and taking effective action will be possible only if new care delivery and financing approaches are incorporated.

Amid the pandemic, many health system CFOs are immersed in a struggle for their organization’s near-term survival. Looking more than a few weeks ahead may seem impossible or even foolish. Yet forward-thinking CFOs will begin transitioning from managing immediate challenges toward envisioning longer-term opportunities to reset their organizations strategically and financially.

The earlier pandemic stages saw many strongly held beliefs obliterated, while long-awaited innovations were accelerated. Telehealth, digital apps and tools, and even drive-through testing sites are clear examples of how our slow-to-adapt healthcare system can change quickly, with immediate improvements in safety, convenience, experience and cost. CFOs should now consider how to seize this momentum and make these changes permanent, while championing additional changes that may have been untenable pre-COVID-19.

Over the next several months, CFOs should take critical actions to address human capital strategy, revenue recovery, cost reduction and capital investment. And approach this task with a new mindset.

Human capital: Make hard choices smart choices

As hospitals deal with COVID-19’s huge financial impact, CFOs must ensure they make hard and smart staffing choices. Many organizations, faced with financial distress, take top-down, blunt-instrument approaches. One organization recently cut nearly 40 FTEs, spread evenly across departments so everyone “did their part.” Yet that meant cutting positions in many growing, profitable revenue generating areas, hamstringing the organization and ultimately forcing it to refill nearly half the eliminated positions.

CFOs who empower their organizations to make well-informed, targeted decisions will avoid similar mistakes. They will protect roles hard to replace in the post-crisis labor market, approaching these roles not as costs, but as investments enabling important services, such as elective surgery and scheduling. Such roles will be essential in any return to growth.

Human capital decisions are especially complicated, because they must manage immediate workforce disruption wrought by COVID-19 and leave room for sustaining and rebuilding it for the future. Many clinicians will exit the field due to stress, long-term COVID-19 health effects or even death. A new class of rising clinicians will have their education disrupted. These workforce implications are potentially traumatic, but CFOs must find opportunity in tragedy. The answer is not rebuilding the old workforce, but shaping a new workforce better suited to healthcare’s future. This imperative means accelerating the shift to staff-efficient care models, maximizing contributions from all clinical and non-clinical staff, extending reach with digital tools and promoting patient self-management.

This transformation is possible only with direct engagement and collaboration of individuals throughout the organization who know the necessary skill sets and how to develop them. Finance leaders must also embrace a vision foreign to many of them: Empowering front-line clinicians and staff with transparency to understand the full scope of considerations influencing each decision. This approach frees employees to make decisions that are optimal for the organization and reduces anxiety while improving enterprise performance.a

Revenue restoration: 3 steps to recovery

Elective care is again permitted, as of early July, in most of the country, but in some states, it is being limited again because of recurrent outbreaks. Rather than returning in a rapid bolus, the return will likely spread widely from late 2020 into early 2021.

A near-term, substantial decline in revenue and margin seems inevitable. Organizations, therefore, should immediately work on three critical steps:

  1. Developing a 90-day plan to aggressively restore revenue
  2. Building new capabilities and alternate payment models to unlock new revenue sources
  3. Ensuring aggressive supply chain management to mitigate risk of recovery delays due to lack of inconsistent PPE supply and other key supply items

These steps will require input from clinical teams, service line and department leads and others throughout the organization.

Elective procedures. Recapturing and restoring elective volumes will be the essential first step on the road to recovery. Yet not all volume will return, and patients who do return will not simply arrive at the door. Even patients who’ve maintained insurance and financial stability will remain wary of entering clinical environments.

Another complicating factor will be defining elective and non-elective cases, or urgent versus non-urgent procedures.

Bringing revenue back will require contributions from many in the organization:

  • Physicians must prioritize personal patient reach outs, keeping them engaged and reassuring them they will be scheduled as soon as possible.
  • Advanced practice providers, nursing staff, and lab and imaging technicians must efficiently and effectively re-prep these patients.
  • Flexible staffing models will be necessary to catch-up on backlog while allowing for a response to potential future waves.

Access and capacity. Improving capacity and addressing access issues plaguing health systems in normal times will be particularly important. Expanded hours and broadened telehealth use will be required. Moreover, the same creative repurposing of staff that’s needed today to manage COVID-19 case volume may soon be required to manage the return of elective care to avoid overtaxing already exhausted staff. Creative solutions will be necessary. Using contract and premium labor to increase capacity post-crisis is undesirable from a cost perspective; and these options may be unavailable.

COVID-19-free facilities. Retrieving volume will require creating credibly clean facilities. A separation between designated COVID-19 sites and clean facilities may become the “new normal” if COVID-19 becomes an endemic or seasonal concern. Designating specific care sites for surges of infectious patients while ensuring other needed care can be delivered at designated clean sites may be necessary.

Payment issues. Financial leaders must quickly engage their payer partners to reevaluate payment relationships. This process should begin with discussing how formal emergency funding mechanisms could be created to ensure the system’s integrity and continuity. COVID-19’s potentially endemic nature means it’s in both partners’ best interests to establish contingency plans for potential future outbreaks.

Telehealth. Providers and payers should collaborate in developing an economic model to accelerate telehealth and digital care channel adoption now that consumers and providers recognize these values. For health system leaders, negotiating a solid, attractive payment plan could pave the way for a fundamentally different and improved long-range plan. Payment is the starting point for any telehealth strategy. Engaging payer partners and arriving at consensus on economic paradigms is essential.

Cost reduction: The easy way or the right way

Costs are spiking as health systems scramble for hard-to-find equipment and personnel to safely care for COVID-19 patients. The old, top-down approach where departments hit broadly drawn targets with little regard for longer-term strategic value is no longer tenable, because it risks imposing cuts that will cripple staff morale and effectiveness. It also could lead to shutting down critical infrastructure functions, leaving the health system unready to turn the long-term revenue spigot back on. A smarter approach is digging deeper to eliminate services that drag the bottom line and to find broader operating-
model changes that improve cost efficiency.

Common sacred cows include comanagement and other partnership structures that once made sense but are now million-dollar albatrosses for many. The same applies to lagging ambulatory assets. System leaders should be transparent with internal stakeholders and external partners: Routine approaches and unsustainable programs must be reevaluated and the focus shifted to the health system’s viability.

COVID-19 has created a long-term opportunity to improve cost structure. Health systems must spend more on some aspects, including digital health infrastructure, stockpiles of critical equipment and even capabilities to manufacture or refurbish critical equipment. Several U.S. health systems and medical centers have partnered with engineering schools and manufacturers to make 3D-print masks.

Health systems also must reduce spending. Ironically, despite current desperate demand for bed capacity, one crisis lesson for consumers and providers is that significant amounts of care can occur in lower-acuity settings and even at home. This reality may reveal opportunities to shed expensive real estate or downgrade facilities, while ensuring facilities can rapidly expand capacity when needed.

Capital investment: As you rebuild, reshape

Much capital investment is on hold as resources are necessarily directed elsewhere, but when it resumes, CFOs can use their collective organizational wisdom to invest in the post-COVID-19 future.

Over the next several months, small independent physician groups may face significant pressure. Even with relief like the CARES Act, with nonexistent revenue, as such groups continue to burn through cash rapidly, they will look to be hired, acquired or otherwise supported by health systems. CFOs should gauge what support is needed for a functional healthcare landscape post-crisis, and seek input from their clinicians and business development staff in assessing the value of those small physician groups. This is no time to abandon critical physician partners to ruin or to over-invest in practices.

As large capital projects come back, system leaders should ensure the new infrastructure maximizes future revenue and flexibility. They could build infrastructure supporting wide-scale data sharing, collection and analysis, and tools for remote patients and other capabilities that deemphasize brick and mortar while opening access and reducing leakage. Public and political sources may exert well-meaning pressure to build more capacity in preparation for future pandemics — a largely unsustainable approach.

Across these dimensions, CFOs should keep an eye on other healthcare system stakeholders. Private equity firms, health plans, technology companies and others will be learning from their own disruptions and planning their own moves post-COVID-19. CFOs should develop plans for how to respond to various scenarios, including new competition, partnership opportunities and acquisition attempts.

Conclusion

This pandemic crisis ultimately will end. But without a new operating model, supported by an organization filled with empowered staff, it will merely roll into a new operational crisis as health systems remain crippled post-COVID-19. Now, not in months or even weeks, is the time to begin long-term changes to avert that crisis. 

Footnote

a Boyes, A., “What Anxiety Does to Us at Work,” Harvard Business Review, May, 2019.

About the Authors

Deirdre Baggot, PhD, RN,

is partner, Health & Life Sciences, Oliver Wyman.

Bruce Hamory, MD,

is partner and CMO, Health & Life Sciences, Oliver Wyman.

John Rudoy, PhD,

is principal, Health & Life Sciences, Oliver Wyman.

Dan Shellenbarger

is partner, global head, provider, Health & Life Sciences, Oliver Wyman.

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