The No. 1 lesson from the 2021 JP Morgan Healthcare Conference: Healthcare is ‘too vital to fail’

Chronic Conditions | HENRY KOTULA

The annual J.P. Morgan Healthcare Conference is one of the best ways to diagnose the financial condition of the healthcare industry. Every January, every key stakeholder — providers, payers, pharmaceutical companies, tech companies, medical device and supply companies as well as bankers, venture capital and private equity firms — comes together in one exam room, even when it is virtual, for their annual check-up. But as we all know, this January is unlike any other as this past year has been unlike any other year.

You would have to go back to the banking crisis of 2008 to find a similar moment from an economic perspective. At the time, we were asking, “Are banks too big to fail?” The concern behind the question was that if they did fail, the economic chaos that would follow would lead to a collapse with the consumer ultimately picking up the tab. The rest is history.

Healthcare is “Too Vital to Fail” 

2020 was historic in too many ways to count. But in a year when healthcare providers faced the worst financial crisis in the history of healthcare, the headline is that they are still standing. And what they proved is that in contrast to banks in 2008 that were seen by many as “too big to fail,” healthcare providers in 2020 proved that they were “too vital to fail.” 

One of the many unique things about the COVID-19 pandemic is we are simultaneously experiencing a health crisis, where healthcare providers are the front line in the battle, and an economic crisis, felt in a big way in healthcare given the unique role hospitals play as the largest employer in most communities. Hospitals and health systems have done the vast majority of testing, treating, monitoring, counseling, educating and vaccinating all while searching for PPE and ventilators, and conducting clinical trials. And that’s just the beginning of the list.

Stop and think about that for a minute. What would we have done without them? Thinking through that question will give you some appreciation for the critical, challenging and central role that healthcare providers have had to play over the past year.

Simply stated, healthcare providers are the heart of healthcare, both clinically (essentially 100 percent of the care) and financially (over 50 percent of the $4 trillion annual spend on U.S. healthcare). Over the last year they stepped up and they stepped in at the moment where we needed them the most. This was despite the fact that, like most businesses, they were experiencing calamitous losses with no assurances of any assistance. 

Healthcare is “Pandemic-Proof”

This was absolutely the worst-case scenario and the biggest test possible for our nation’s healthcare delivery system. Patient volume and therefore revenue dropped by over 50 percent when the panic of the pandemic was at its peak, driving over $60 billion in losses per month across hospitals and healthcare providers. At the same time, they were dramatically increasing their expenses with PPE, ventilators and additional staff. This was not heading in a good direction. While failure may not have been seen as an option, it was clearly a possibility. 

The CARES Act clearly provided a temporary lifeline, providing funding for our nation’s hospitals to weather the storm. While there are more challenging times ahead, it is now clear that most are going to make it to the other side. The system of care in our country is often criticized, but when faced with perhaps the most challenging moment in the history of healthcare, our nation’s hospitals and health systems stepped up heroically and performed miraculously. The work of our healthcare providers on the front line and those who supported them was and is one thing that we all should be exceptionally proud of and thankful for. In 2020, they proved that not only is our nation’s healthcare system too vital to fail, but also that it is “pandemic proof.” 

Listening to Front Line at the 2021 J.P. Morgan Healthcare Conference 

There has never been a more important year to listen to the lessons from healthcare providers. They are and were the front line of our fight against COVID-19. If there was a class given about how to deal with a pandemic at an institutional level, this conference is where those lessons were being taught.  

This year at the J.P. Morgan Healthcare Conference, CEOs, and CFOs from many of the most prestigious and most well-respected health systems in the world presented including AdventHealth, Advocate Aurora Health, Ascension, Baylor Scott & White Health, CommonSpirit Health, Henry Ford Health System, Intermountain Healthcare, Jefferson Health, Mass General Brigham, Northwell Health, OhioHealth, Prisma Health, ProMedica Health System, Providence, Spectrum Health and SSM Health.

I’ve been in healthcare for 30 years and this is my fifth year of writing up the summary of the non-profit provider track of the conference for Becker’s Healthcare to help share the wisdom of the crowd of provider organizations that share their stories. Clearly, this year was different and not because the presentations were virtual, but because they were inspirational. 

What did we learn? The good news is that they have made many changes that have the potential to move healthcare in a much better direction and to get to a better place much faster. So, this year instead of providing you a nugget from each presentation, I am going to take a shot at summarizing what they collectively have in motion to stay vital after COVID.

10 Moves Healthcare Providers are Making to Stay Vital After-COVID

As a leader in healthcare, you will never have a bigger opportunity to drive change than right now. Smart leaders are framing this as essentially “before-COVID (BC)” and “after-COVID (AC)” and using this moment as their burning platform to drive change. Credit to the team at Providence for the acronym, but every CEO talked about this concept. As the saying goes, “never let a good crisis go to waste.” Well, we’ve certainly had a crisis, so here is a list of what the top health systems are doing to ensure that they don’t waste it and that they stay vital after-COVID:

1. Take Care of Your Team and They’ll Take Care of You: In a crisis, you can either come together as a team or fall apart. Clearly there has been a significant and stunning amount of pressure on healthcare providers. Many are fearing that mental health might be our nation’s next pandemic in the near future because they are seeing it right now with their own team. Perhaps one of their biggest lessons from this crisis has been the need to address the mental, physical and spiritual health of both team members as well as providers. They have put programs in place to help and have also built a tremendous amount of trust with their team by, in many cases, not laying off and/or furloughing employees. While they have made cuts in other areas such as benefits, this collective approach proved incredibly beneficial. And the last point here that relates to thinking differently about their team is that similar to other businesses, many health systems are making remote arrangements permanent for certain administrative roles and moving to a flexible approach regarding their team and their space in the future. 

2. Focus on Health Equity, Not Just Health Care: This was perhaps the most notable and encouraging change from presentations in past years at J.P. Morgan. I have been going to the conference for over a decade, and I’ve never heard someone mention this term or outline their efforts on “health equity” — this year, nearly everyone did. In the past, they have outlined many wonderful programs on “social determinants of health,” but this year they have seen the disproportionate impact of COVID on low-income communities bringing the ongoing issue of racial disparities in access to care and outcomes to light. As the bedrock of employment in their community, this provides an opportunity to not just provide health care, but also health equity, taking an active role to help make progress on issues like hunger, homelessness, and housing. Many are making significant investments in a number of these and other areas. 

3. Take the Lead in Public Health — the Message is the Medicine: One of the greatest failings of COVID, perhaps the greatest lesson learned, is the need for clear and consistent messaging from a public health perspective. That is a role that healthcare providers can and should play. In the pandemic, it represented the greatest opportunity to save lives as the essence of public health is communication — the message is the medicine. A number of health systems stepped into this opportunity to build trust and to build their brand, which are essentially one in the same. Some organizations have created a new role — a Chief Community Health Officer — which is a good way to capture the work that is in motion relative to social determinants of health as well as health equity. Many understand the opportunity here and will take the lead relative to vaccine distribution as clear messaging to build confidence is clearly needed.

4. Make the Home and Everywhere a Venue of Care: A number of presenters stated that “COVID didn’t change our strategy, it accelerated it.” For the most part, they were referring to virtual visits, which increased dramatically now representing around 10 percent of their visits vs. 1 percent before-COVID. One presenter said, “Digital has been tested and perfected during COVID,” but that is only considering the role we see digital playing in this moment. It is clear some organizations have a very narrow tactical lens while others are looking at the opportunity much more strategically. For many, they are looking at a “care anywhere and everywhere” strategy. From a full “hospital in the home” approach to remote monitoring devices, it is clear that your home will be seen as a venue of care and an access point moving forward. The pandemic of 2020 may have sparked a new era of “post-hospital healthcare” — stay tuned.

5. Bury Your Budget and Pivot to Planning: The budget process has been a source of incredible distrust, dissatisfaction and distraction for every health system for decades. The chaos and uncertainty of the pandemic forced every organization to bury their budget last year. With that said, many of the organizations that presented are now making a permanent shift away from a “budget-based culture” where the focus is on hitting a now irrelevant target set that was set six to nine months ago to a “performance-based culture” where the focus is on making progress every day, week, month and quarter. Given that the traditional annual operating budget process has been the core of how health systems have operated, this shift to a rolling forecast and a more dynamic planning process is likely the single most substantial and permanent change in how hospitals and health systems operate due to COVID. In other words, it is arguably a much bigger headline than what’s happened with virtual visits.

6. Get Your M&A Machine in Motion: It was clear from the presentations that activity around acquisitions is going to return, perhaps significantly. These organizations have strong balance sheets and while the strong have gotten stronger during COVID, the weak have in many cases gotten weaker. Many are going to be opportunistic to acquire hospitals, but at the same time they have concluded that they can’t just be a system of care delivery. They are also focused on acquiring and investing in other types of entities as well as forming more robust partnerships to create new revenue streams. Organizations that already had diversified revenue streams in place came through this pandemic the best. Most hospitals are overly reliant on the ED and surgical volume. Trying to drive that volume in a value-based world, with the end of site of service differentials and the inpatient only list, will be an even bigger challenge in the future as new niche players enter the market. As I wrote in the headline of my summary two years ago,It’s the platform, stupid.” There are better ways to create a financial path forward that involve leveraging their assets — their platform — in new and creative ways. 

7. Hey, You, Get into the Cloud: With apologies for wrapping a Rolling Stones song into a conference summary, one of the main things touted during presentations was “the cloud” and their ability to pull clinical, operational and financial dashboards together to monitor the impact of COVID on their organization and organize their actions. Focus over the last decade has been on the clinical (implementing EHRs), but it is now shifting to “digitizing operations” with a focus on finance and operations (planning, cost accounting, ERPs, etc.) as well as advanced analytics and data science capabilities to automate, gather insight, manage and predict. It is clear that the cloud has moved from a curiosity to a necessity for health systems, making this one of the biggest areas of investment for every health system over the next decade.

8. Make Price Transparency a Key Differentiator: One of the great lessons from Amazon (and others) is that you can make a lot of money when you make something easy to buy. While many health systems are skeptical of the value of the price transparency requirements, those that have a deep understanding of both their true cost of care and margins are using this as an opportunity to prove their value and accelerate their strategy to become consumer-centric. While there is certainly a level of risk, no business has ever been unsuccessful because they made their product easier to understand and access. Because healthcare is so opaque, there is an opening for healthcare providers to build trust, which is their main asset, and volume, which is their main source of revenue, by becoming stunningly easy to do business with. This may be tough sledding for some as this isn’t something healthcare providers are known for. To understand this, spend a few minutes on Tesla’s website vs. Ford’s. The concept of making something easy, or hard, to buy will become crystal clear as fast as a battery-driven car can go from zero to 60.

9. Make Care More Affordable: This represents the biggest challenge for hospitals and health systems as they ultimately need to be on the right side of this issue or the trust that they have will disappear and they will remain very vulnerable to outside players. All are investing in advanced cost accounting systems (time-driven costing, physician costing, supply, and drug costing) to truly understand their cost and use that as a basis to price more strategically in the market. Some are dropping prices for shoppable services and using loss leader strategies to build their brand. The incoming Secretary of Health and Human Services has a strong belief regarding the accountability of health systems to be consumer centric. The health systems that understand this are working to get ahead of this issue as it is likely one of their most significant threats (or opportunities) over the next decade. This means getting all care to the right site of care, evaluating every opportunity to improve, and getting serious about eliminating the need for expensive care through building healthy communities. If you’re worried about Wal-Mart or Amazon, this is your secret weapon to keep them on the sideline.

10. Scale = Survival: One of the big lessons here is that the strong got stronger, the weak got weaker. For the strong, many have been able to “snapback” in financial performance because they were resilient. They were able to designate COVID-only facilities, while keeping others running at a higher capacity. To be clear, while most health systems are going to get to the other side and are positioned better than ever, there are many others that will continue to struggle for years to come. According to our data at Strata, we see 25 percent operating at negative margins right now and another 50 percent just above breakeven. They key to survival moving forward, for those that don’t have a captive market, will be scale. If this pandemic proved one thing relative to the future of health systems it is this — scale equals survival. 

When Will We Return to Normal?

Based on what the projections that these health systems shared, the “new normal” for health systems for the first half of 2021 will be roughly 95 percent of prior year inpatient volume with a 20 percent year-over-year drop in ED volume and a drop of 10-15 percent in observation visits. So, the pain will continue, but given the adjustments that were already made in 2020, it looks like they will be able to manage through COVID effectively. While there will be a pickup in the second half of 2021, the safe bet is that a “return to normal” pre-COVID volumes likely won’t occur until 2022. And there are some who believe that some of the volume should have never been there to begin with and we might see a permanent shift downward in ED volume as well as in some other areas.

With that said, I’ll steal a quote from Bert Zimmerli, the CFO of Intermountain Healthcare, who said, “Normal wasn’t ever nearly good enough in healthcare.” In that spirit, the goal should be to not return to normal, but rather to use this moment as an opportunity to take the positive changes driven by COVID — from technology to processes to areas of focus to a sense of responsibility — and make them permanent.

Thanking Our “Healthcare Heroes”

We’ll never see another 2020 again, hopefully. With that said, one of the silver linings of the year is everything we learned in healthcare. The most important lesson was this — in healthcare there are literally heroes everywhere. To each of them, I just want to say “thank you” for being there for us when we needed you the most. We should all be writing love letters to those on the front line who risked their lives to save others. Our nation’s healthcare system has taken a lot of criticism through the years from those on the outside, often with a blind eye to how things work in practice vs. in concept. But this year we all got to see first-hand what’s happening inside of healthcare — the heroic work of our healthcare providers and those who support them. 

They faced the worst crisis in the history of healthcare. They responded heroically and were there for our families and friends.

They proved that healthcare is too vital to fail. They proved that healthcare is pandemic-proof.

Thank you to our healthcare heroes.

Haven, the Amazon-Berkshire-JPMorgan venture to disrupt health care, is disbanding after 3 years

https://www.cnbc.com/2021/01/04/haven-the-amazon-berkshire-jpmorgan-venture-to-disrupt-healthcare-is-disbanding-after-3-years.html

Haven, the Amazon-Berkshire-JPMorgan venture to disrupt health care, is disbanding  after 3 years

KEY POINTS

  • Haven began informing employees Monday that it will shut down by the end of next month, according to people with direct knowledge of the matter.
  • Many of the Boston-based firm’s 57 workers are expected to be placed at Amazon, Berkshire Hathaway or JPMorgan Chase as the firms each individually push forward in their efforts, the people said.
  • One key issue facing Haven was that each of the three founding companies executed their own projects separately with their own employees, obviating the need for the joint venture to begin with, according to the people, who declined to be identified speaking about the matter.

Haven, the joint venture formed by three of America’s most powerful companies to lower costs and improve outcomes in health care, is disbanding after three years, CNBC has learned exclusively.

The company began informing employees Monday that it will shut down by the end of next month, according to people with direct knowledge of the matter.

Many of the Boston-based firm’s 57 workers are expected to be placed at AmazonBerkshire Hathaway or JPMorgan Chase as the firms each individually push forward in their efforts, and the three companies are still expected to collaborate informally on health-care projects, the people said.

The announcement three years ago that the CEOs of Amazon, Berkshire Hathaway and JPMorgan Chase had teamed up to tackle one of the biggest problems facing corporate America – high and rising costs for employee health care  – sent shock waves throughout the world of medicine. Shares of health-care companies tumbled on fears about how the combined might of leaders in technology and finance could wring costs out of the system.

The move to shutter Haven may be a sign of how difficult it is to radically improve American health care, a complicated and entrenched system of doctors, insurers, drugmakers and middlemen that costs the country $3.5 trillion every year. Last year, Berkshire CEO Warren Buffett seemed to indicate as much, saying that were was no guarantee that Haven would succeed in improving health care.

Shares of UnitedHealth GroupHumana and CVS Health each climbed more than 2% after the Haven news broke.

One key issue facing Haven was that while the firm came up with ideas, each of the three founding companies executed their own projects separately with their own employees, obviating the need for the joint venture to begin with, according to the people, who declined to be identified speaking about the matter.

Coming just three years after the initial rush of fanfare about the possibilities for what Haven could accomplish, its closure is a disappointment to some. But insiders claim that it will allow the founding companies to implement ideas from the project on their own, tailoring them to the specific needs of their employees, who are mostly concentrated in different cities.

The move comes after Haven’s CEO, Dr. Atul Gawande, stepped down from day-to-day management of the nonprofit in May, a change that sparked a search for his successor.

Brooke Thurston, a spokeswoman for Haven, confirmed the company’s plans to close and gave this statement:

The Haven team made good progress exploring a wide range of healthcare solutions, as well as piloting new ways to make primary care easier to access, insurance benefits simpler to understand and easier to use, and prescription drugs more affordable,” Thurston said in an email.

Moving forward, Amazon, Berkshire Hathaway, and JPMorgan Chase & Co. will leverage these insights and continue to collaborate informally to design programs tailored to address the specific needs of our individual employee populations and locations,” she said.

Baylor Scott & White to lay off 102 employees, outsource jobs to India

Baylor Scott & White Health to lay off 102 finance workers and outsource  their duties to India

Dallas-based Baylor Scott & White Health said it will lay off 102 employees in finance and accounting roles as part of an effort to reshape operations and reduce costs, according to The Dallas Morning News

The duties of the affected workers will be outsourced to a third-party vendor in India. About 18 of the affected Baylor employees will be offered positions with the vendor, according to the report.

A spokesperson for Baylor Scott & White told Becker’s Hospital Review that the system will retain about two-thirds of its corporate finance department. 

“Our system is continuously looking for ways to reduce costs and improve our ability to provide affordable and quality healthcare for our patients and members. As part of this, we are transforming the way we deliver our corporate finance services,” the nonprofit health system wrote in a statement obtained by Becker’s. 

The cuts follow a larger round of layoffs and furloughs announced in May, which affected about 1,200 employees, or 3 percent of its workforce.

The health system said it is working to be more efficient and intentional in how resources are used. It is working to add front-line caregivers and has more than 2,000 open clinical jobs, a spokesperson told Becker’s. 

“We care deeply about all our colleagues and are committed to supporting them through this process,” the statement read.

Are you ready for price transparency?

https://interimcfo.wordpress.com/2020/10/22/are-you-ready-for-price-transparency/

Exploring the Fundamentals of Medical Billing and Coding

Abstract:  This article focuses on the correct strategic response to the impending implementation of price transparency on New Year’s Day of next year.

I have stated before that I have multiple articles in process at any given time.  Some of them have been ‘in process’ for years because newer topics sometimes rise to the queue’s top.  Price transparency is an example of such a case.  I have a friend who is developing AI-enabled solutions to help organizations respond to price transparency government diktats.  Few people beyond healthcare CFOs, healthcare financial consultants, and accountants have any useful understanding of how convoluted hospital pricing has become due to decades of ill-conceived government policy for the most part.

Another problem is endless confusion over terms.  People frequently interchange the terms ‘price’, ‘cost’, ‘payment’, and ‘reimbursement’ in situations where the polar opposite is true on the other side of the issue.  In other words, ‘cost’ to a payor is price or reimbursement to a provider.

Anyway, my friend’s questions finally inspired me to go to the Federal Register, acquire the final rule, and begin the process of learning where government is headed with these regulations.  There are probably at least fifty diatribe angles I could launch into over the final rule, but I will confine my rant to only a couple of points.  

First, the final draft of the rule is ‘only’ 331 pages long. The three-column final rule in the Federal Register is ‘only’ 83 pages long.  That pales compared to Obamacare that is over 1,200 pages long, so by government standards, this is but a trifle of regulation.  

Secondly, some parts of the final rule are actually funny.  For example, CMS estimates that the average hospital will spend only 150 staff hours in the first and 46 staff hours in subsequent years complying with price transparency requirements.  Is it constitutional for government to compel private enterprises to disclose the terms of what they thought were private contracts?  Apparently so.  Once government breaks this ice, will any agreement of any type ever be private?

As I have discussed price transparency with healthcare leaders, I sense that leaders are currently focused on technical compliance with the regulations.  With COVID on their plate simultaneously, they have little capacity to take on strategic financial planning.

The final rule lays out in excruciating detail what providers face complying with the regulation.  Reading the comments and responses is equally entertaining.  CMS repeatedly says something to the effect; we heard your concern, and we’re proceeding as planned anyway.  Litigation brought by the AHA and others has to date been unsuccessful in slowing stopping the price transparency snowball that is now most of the way down the mountain.

So, what are you supposed to do?  The CFO and CIO will work, possibly with consultants’ assistance, to prepare the organization’s data release.  Soon after the release occurs, expect the defecation to hit the rotary oscillator.  The press will call out organizations with high prices, and the rancor over learning what some systems have been able to get from third-party payors will be entertaining, to say the least.  Many people believe that one of the primary motivators of the massive consolidation occurring in the healthcare industry is the market leverage exerted by growing systems on third-party payors to obtain otherwise unachievable reimbursement rates.

Regardless of the course of action following price releases in January, the intended and most likely result of this initiative is to drive prices to a lower common denominator.  A lot of people think Medicare rates will become that benchmark.  There are two significant issues that I did not see addressed in the pricing rule that will have the effect of transferring substantial risk to providers.  

The first is that there will be little if any provision for recognition of complications, comorbidities, and hospital-acquired conditions that can dramatically impact the cost of care in a given diagnosis.  

The second is the elephant in the room. The current pricing system has developed over time to facilitate cross-subsidization among payors.  There is a reason that commercial rates are so high that has nothing to do with the cost of providing care.  I have stated before that, government has turned the entire healthcare industry into a taxing authority to extract tax from commercial payors for the benefit of government payors that routinely reimburse providers below the cost of providing care.  It has been entertaining to watch the reaction of Boards of Directors when they first realize that the healthcare system has been forced by government into a wealth redistribution mechanism.

So, what happens as providers lose the ability to cross-subsidize the cost of care?  Very few hospitals (<10%) are profitable on Medicare, and it is doubtful that any hospital is breaking even on services provided to Medicaid patients.  In my experience, hospital reimbursement for self-pay patients is less than 5% of charges.  If the prices hospitals realize for services start falling and they lose the current ability to cross-subsidize the cost of care . . . . . well, you don’t need an MBA to understand the likely outcome.

What to do?  If (when) prices start falling and providers lose pricing leverage, the only place to turn is operating expense.  Hospitals that have failed to undertake serious, highly focused, and robust operating cost reduction programs that yield quantifiable results may not have a very bright future.  If your organization is not in the bottom quartile of operating cost compared to its peer group and part of your mission is to remain independent, you must be losing sleep.  In a recent article related to COVID Response, I argued that the time has come to get after clinical process variance that is the source of most of the high cost, waste, and abuse in the healthcare system. For most organizations, the days of sourcing cheaper supplies and sending nurses home early are, for the most part, over as there is little if any juice remaining in that lemon.

If, as a leader, you do not have a plan that gets you to break-even on Medicare within the next 12-18 months, you had better have a plan B, something like tuning up your CV.  I can help you with your response to price transparency, working on your CV, or helping manage your next career transition as the case may turn out.  I am as close as your phone.  Best of luck.

Contact me to discuss any questions or observations you might have about these articles, leadership, transitions, or interim services. I might have an idea or two that might be valuable to you. An observation from my experience is that we need better leadership at every level in organizations. Some of my feedback comes from people demonstrating interest in advancing their careers and inspiring content to address those inquiries.

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https://interimcfo.wordpress.com/

Jefferson Health to cut 500 jobs, reduce executive pay

https://www.beckershospitalreview.com/finance/jefferson-health-to-cut-500-jobs-reduce-executive-pay.html?utm_medium=email

Jefferson Aims to Acquire Aria Health

Philadelphia-based Jefferson Health is taking steps to reduce costs to help offset losses tied to the COVID-19 pandemic. 

The 14-hospital system plans to eliminate between 500 and 600 positions through attrition and will cut pay for its “most senior executives,” according to the Philadelphia Business Journal

Jefferson Health is making cuts after reporting a net loss of $298.7 million in the fiscal year ended June 30. The system posted a loss after receiving $320 million in grants made available under the Coronavirus Aid, Relief and Economic Security Act to help cover lost revenue and expenses linked to the pandemic, according to The Philadelphia Inquirer.

“As one of the health systems in the United States with the largest amount of Covid patients during the surge, and one of the lowest employee infectivity rates, we took a ‘no expense is too much to protect our employees’ approach with PPE and other measures that drove up short-term expenses,” Stephen Klasko, MD, president of Thomas Jefferson University and CEO of Jefferson Health, told the Philadelphia Business Journal. 

Dr. Klasko said patient volumes are beginning to rebound, and the health system is ahead of budget for fiscal year 2021. 

“We made a conscious decision, as the region’s second-largest employer, to do no furloughs and only very few pre-planned layoffs during the pandemic surge,” Dr. Klasko told the Philadelphia Business Journal. “Due to our financial stewardship and growth over the past five years, our balance sheet was very stable and remains very stable despite the pandemic tsunami.”

In addition to cutting unfilled positions and reducing executive pay, the health system is taking a few other steps to achieve savings, including a pay freeze and a one-year suspension of employer contributions to employee retirements plans beginning Jan. 1. 

Moody’s: Hospital financial outlook worse as COVID-19 relief funds start to dwindle

https://www.fiercehealthcare.com/hospitals/moody-s-hospital-financial-outlook-worse-as-covid-19-relief-funds-start-to-dwindle?mkt_tok=eyJpIjoiWTJZek56Z3lNV1E0TW1NMyIsInQiOiJKdUtkZE5DVGphdkNFanpjMHlSMzR4dEE4M29tZ24zek5lM3k3amtUYSt3VTBoMmtMUnpIblRuS2lYUWozZk11UE5cL25sQ1RzbFpzdExcL3JvalBod3Z6U3BZK3FBNjZ1Rk1LQ2pvT3A5Witkc0FmVkJocnVRM0dPbFJHZTlnRGJUIn0%3D&mrkid=959610

For-profit hospitals are expected to see a financial decline over the next 12 to 18 months as federal relief funds that shored up revenue losses due to COVID-19 start to wane, a recent analysis from Moody’s said.

The analysis, released Monday, finds that cost management is going to be challenging for hospital systems as more surgical procedures are expected to migrate away from the hospital and people lose higher-paying commercial plans and go to lower-paying government programs such as Medicaid.

“The number of surgical procedures done outside of the hospital setting will continue to increase, which will weaken hospital earnings, particularly for companies that lack sizeable outpatient service lines (including ambulatory surgery centers),” the analysis said.

A $175 billion provider relief fund passed by Congress as part of the CARES Act helped keep hospital systems afloat in March and April as volumes plummeted due to the cancellation of elective procedures and reticence among patients to go to the hospitals.

Some for-profit systems such as HCA and Tenet pointed to relief funding to help generate profits in the second quarter of the year. The benefits are likely to dwindle as Congress has stalled over talks on replenishing the fund.

“Hospitals will continue to recognize grant aid as earnings in Q3 2020, but this tailwind will significantly moderate after that,” Moody’s said.

Cost cutting challenges

Compounding problems for hospitals is how to handle major costs.

Some hospital systems cut some costs such as staff thanks to furloughs and other measures.

“Some hospitals have said that for every lost dollar of revenue, they were able to cut about 50 cents in costs,” the analysis said. “However, we believe that these levels of cost cuts are not sustainable.”

Hospitals can’t cut costs indefinitely, but the costs for handling the pandemic (more money for personal protective equipment and safety measures) are going to continue for some time, Moody’s added.

“As a result, hospitals will operate less efficiently in the wake of the pandemic, although their early experiences in treating COVID-19 patients will enable them to provide care more efficiently than in the early days of the pandemic,” the analysis found. “This will help hospitals free up bed capacity more rapidly and avoid the need for widespread shutdowns of elective surgeries.”

But will that capacity be put to use?

The number of surgical procedures done outside of the hospital is likely to increase and will further weaken earnings, Moody’s said.

“Outpatient procedures typically result in lower costs for both consumers and payers and will likely be preferred by more patients who are reluctant to check-in to a hospital due to COVID-19,” the analysis said.

The payer mix will also shift, and not in hospitals’ favor. Mounting job losses due to the pandemic will force more patients with commercial plans toward programs such as Medicaid.

“This will hinder hospitals’ earnings growth over the next 12-18 months,” Moody’s said. “Employer-provided health insurance pays significantly higher reimbursement rates than government-based programs.”

Bright spots

There are some bright spots for hospitals, including that not all of the $175 billion has been dispersed yet. The CARES Act continues to provide hospitals with a 20% add-on payment for treating Medicare patients that have COVID-19, and it suspends a 2% payment cut for Medicare payments that was installed as part of sequestration.

The Centers for Medicare & Medicaid Services also proposed increasing outpatient payment rates for the 2021 fiscal year by 2.6% and in-patient rates by 2.9%. The fiscal year is set to start next month.

Patient volumes could also return to normal in 2021. Moody’s expects that patient volumes will return to about 90% of pre-pandemic levels on average in the fourth quarter of the year.

“The remaining 10% is likely to come back more slowly in 2021, but faster if a vaccine becomes widely available,” the analysis found.

 

 

 

 

Will ED volumes ever bounce back?

https://mailchi.mp/f5713fcae702/the-weekly-gist-september-18-2020?e=d1e747d2d8

Hospitals' ED volumes rebounding slower than other areas

We’re hearing from health systems across the country that physician office, surgery and diagnostic volumes have mostly returned to pre-pandemic levels. Consumers appear to feel comfortable coming back to scheduled appointments as long as social distancing and capacity can be managed. But they’re more reticent to return to “unscheduled” care settings that may involve a long wait, like urgent care clinics and emergency departments, where visits have stabilized at 75 to 85 percent of pre-pandemic levels.

The latter in particular has proved concerning to hospitals leaders, who have begun to ask, what if ED volumes never fully come back? (Around 15 percent of ED visits convert to inpatient stays, on average, making the ED an important source of downstream revenue for hospitals.) We spoke recently with a health system COO who realistically thinks that 10 percent of the volume could be gone for good, and recognizes that “from a public health perspective, that’s probably a good thing”, given that lower-acuity, non-emergent patients account for a portion of the “lost” volume.

But concerns about patients delaying much-needed care persist—amplifying the need for alternate channels, both virtual and in-person, for patients to access care and quickly connect to more intensive services if needed. Hospital leaders would be wise to prepare for a “90 percent future”, and adjust revenue models and cost structures to be less dependent on admissions and procedures that come through the emergency department.

 

 

 

 

2020 Hospital Operating Margins Down 96% Through July

https://www.prnewswire.com/news-releases/2020-hospital-operating-margins-down-96-through-july-301116888.html

Ship in a Storm | ICOExaminer

Hospital Operating Margins have plunged 96% since the start of 2020 in comparison with the first seven months of 2019, according to a new Kaufman Hall report, as uncertainty and volatility continue in the wake of the COVID-19 pandemic.

Those results do not include federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Even with that aid, however, Operating Margins are down 28% year-to-date compared to January-July 2019.

Operating Margins fell 2% year-over-year in July without the CARES Act relief, according to the latest edition of Kaufman Hall’s National Hospital Flash Report. Hospitals also saw flat year-over-year gross revenue performance in July, continued high per-patient expenses, and a fifth consecutive month of volumes falling below 2019 performance and below budget.

From June to July, however, hospital Operating Margins were up 24%, likely due to a backlog in demand resulting from the shutdown of many non-urgent services in the early months of the pandemic.

“COVID-19 has created a highly volatile operating environment for our nation’s hospitals and health systems,” said Jim Blake, managing director, Kaufman Hall. “Hospitals have shown some incremental signs of potential financial recovery in recent months. Unfortunately, there is no guarantee these trends will continue, and hospitals still have a long way to go to recover from devastating losses in the early months of the pandemic.”

July volumes continued to fall year-over-year, but showed some signs of potential recovery month-over-month. Adjusted Discharges were down 7% compared to July 2019, but up 6% compared to June 2020. Adjusted Patient Days were down 4% year-over-year, but up 7% month-over-month. Adjusted Discharges are down 13% and Adjusted Patient Days are down 11% since the start of 2020, compared to the first seven months of 2019.

Hospital Emergency Department (ED) volumes have been hardest hit, falling 17% year-to-date compared to the same period in 2019, down 17% year-over-year, and 13% below budget in July. Surgery volumes saw some gains with the continued resumption of non-urgent procedures pushing Operating Room Minutes up 3% month-over-month and 4% above budget in July, but they remain down 15% year-to-date.

Not including CARES Act relief, Gross Operating Revenues were essentially flat year-over-year and 2% below budget for the month, but have fallen 8% year-to-date compared to the same period in 2019. Inpatient Revenue is down 5% year-to-date and fell 3% below budget in July, but increased 1% year-over-year. Outpatient Revenue is down 11% year-to-date, 1% year-over-year, and 2% below budget.

Hospitals nationwide also continued to see higher per-patient expenses despite having fewer patients. Total Expense per Adjusted Discharge has jumped 16% year-to-date compared to the same seven-month period in 2019, and rose 9% year-over-year and 5% above budget in July. Labor Expense per Adjusted Discharge is up 18% year-to-date and rose 9% year-over-year and 5% above budget in July. Non-Labor Expense per Adjusted Discharge has increased 15% during the first seven months of 2020 and jumped 11% year-over-year and was 5% above budget for the month.

The National Hospital Flash Report draws on data from more than 800 hospitals.

 

 

 

 

Providence posts $538M loss, lays out 3-part strategic plan

https://www.beckershospitalreview.com/finance/providence-posts-538m-loss-lays-out-3-part-strategic-plan.html?utm_medium=email

Providence St. Joseph Health Consolidates 14 Hospitals in SoCal ...

Providence, a 51-hospital system based in Renton Wash., received $651 million in federal grants in the first half of this year, but it wasn’t enough to offset the system’s losses tied to the COVID-19 pandemic. 

The health system reported revenues of $12.5 billion in the first six months of this year, down from $12.6 billion in the same period a year earlier, according to financial documents released Aug. 17. Though the health system reported a rebound in patient volumes after the suspension of non-emergency procedures in March and April, net patient service revenue was down 10 percent year over year.

Providence’s expenses also increased. For the first two quarters of this year, the health system reported operating expenses of $12.7 billion, up 3 percent year over year. The increase was attributed to higher labor costs and increased personal protective equipment and pharmaceutical spend.

Reduced patient volumes combined with increased costs drove an operating loss of $221 million in the first half of this year. In the first half of 2019, Providence reported operating income of $250 million.

After factoring in nonoperating items, Providence ended the first six months of 2020 with a net loss of $538 million, compared to net income of $985 million in the same period of 2019.

To help offset financial damage, Providence received $651 million in federal grants made available under the Coronavirus Aid, Relief and Economic Security Act. 

“We knew we were in for a marathon the moment we admitted our first patient with COVID-19 seven months ago,” Providence President and CEO Rod Hochman, MD, said in an earnings release. “Our caregivers have been on the front lines ever since, and we are incredibly proud and grateful for all they are doing to serve our communities during the greatest crisis of our lifetime.”

In its earnings release, Providence mapped out a three-part plan for the future. As part of that plan, the system said it is focused on improving testing capacity and turnaround times and advancing clinical research and best practices in the treatment of COVID-19. The system is also revising its operating model and cost structure.