- While CFOs, on the whole, remain optimistic about an economic rebound this year, they’re concerned about labor availability and accompanying cost pressures, according to a quarterly survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta.
- Over 75% of CFOs included in the survey said their companies faced challenges in finding workers. More than half of that group also said worker shortage reduced their revenue—especially for small businesses. The survey panel includes 969 CFOs across the U.S.
- “CFOs expect revenue and employment to rise notably through the rest of 2021,” Sonya Ravindranath Waddell, VP and economist at the Federal Reserve Bank of Richmond said. “[But] over a third of firms anticipated worker shortages to reduce revenue potential in the year.”
As many companies struggle to find employees and meet renewed product demand, it’s unsurprising CFOs anticipate both cost and price increases, Waddell said.
About four out of five CFO respondents reported larger-than-normal cost increases at their firms, which they expect will last for several more months. They anticipate the bulk of these cost increases will be passed along to the consumer, translating into higher-priced services.
Despite labor concerns, CFOs are reporting higher optimism than last quarter, ranking their optimism at 74.9 on a scale of zero to 100, a 1.7 jump. They rated their optimism towards the overall U.S. economy at an average of 69 out of 100, a 1.3 increase over last quarter.
For many CFOs, revenue has dipped below 2019 levels due to worker shortage, and in some cases, material shortages, Waddell told Fortune last week. Even so, spending is on the rise, which respondents chalked up to a reopening economy.
“Our calculations indicate that, if we extrapolate from the CFO survey results, the labor shortage has reduced revenues across the country by 2.1%,” Waddell added. “In 2019, we didn’t face [the] conundrum of nine million vacancies combined with nine million unemployed workers.”
Consumer prices have jumped 5.4% over the past year, a U.S. Department of Labor report from last week found; a Fortune report found that to be the largest 12-month inflation spike since the Great Recession in 2008.
To reduce the need for labor amid the shortage, many companies will be “surviving with just some compressed margins for a while, or turning to automation,” Waddell said.
An estimate from the Partnership for America’s Healthcare Future predicts that nearly four out of five 60- to 64-year-olds would enroll in Medicare, with two-thirds transitioning from existing commercial plans, if “Medicare at 60” becomes a reality.
In the graphic above, we’ve modeled the financial impact this shift would have on a “typical” five-hospital health system, with $1B in revenue and an industry-average two percent operating margin.
If just over half of commercially insured 60- to 64-year-olds switch to Medicare, the health system would see a $61M loss in commercial revenue.
There would be some revenue gains, especially from patients who switch from Medicaid, but the net result of the payer mix shift among the 60 to 64 population would be a loss of $30M, or three percent of annual revenue, large enough to push operating margin into the red, assuming no changes in cost structure. (Our analysis assumed a conservative estimate for commercial payment rates at 240 percent of Medicare—systems with more generous commercial payment would take a larger hit.)
Coming out of the pandemic, hospitals face rising labor costs and unpredictable volume in a more competitive marketplace. While “Medicare at 60” could provide access to lower-cost coverage for a large segment of consumers, it would force a financial reckoning for many hospitals, especially standalone hospitals and smaller systems.
A topic that’s come up in almost every discussion we’ve had with health system executive teams and boards recently is workforce strategy. Beyond the immediate political debate about whether temporary unemployment benefits are exacerbating a shortage of workers, there’s a growing recognition that the healthcare workforce is approaching something that looks like a “perfect storm”.
The workforce is mentally and physically exhausted from the pandemic, which has taken a toll both professionally and personally. Many workers are rethinking their work-life balance equations in the wake of a difficult year, during which working conditions and family responsibilities shifted dramatically. That, along with broader economic inflation, is driving demands for higher wages and a more robust set of benefits.
Meanwhile, many health systems are shifting into cost-cutting mode, due to COVID-related shifts in demand patterns and continued downward pressure on reimbursement rates, forcing a renewed focus on workforce productivity.
These combined forces threaten to create a negative spiral, which could lead to even worse shortages and deteriorating workplace engagement. It’s striking how quickly the “hero” narrative has shifted to a “crisis” narrative, and we agree completely with one health system board member who told us recently that workforce strategy is now the number one issue on his agenda.
No easy answers here, but we’ll continue to report on innovative approaches to addressing these difficult challenges.
JPMorgan Chase on May 20 unveiled its new healthcare company, dubbed Morgan Health, which its top executive told Becker’s Hospital Review can be viewed as a continuation of Haven, an ambitious healthcare venture that recently disbanded.
“We learned a lot from the Haven experience,” Dan Mendelson, CEO of Morgan Health, said. “The Haven experience focused us on primary care, digital medicine and specific populations. … You can see this as a continuation of the work that was started at Haven.”
However, Mr. Mendelson said there are several key differences between Morgan Health and Haven, the healthcare venture launched by Amazon, Berkshire Hathaway and JPMorgan Chase in 2018. For one, it has a much more simplified business structure, as it is a unit of JPMorgan Chase. Second, it has a philosophy of striking partnerships to meet its goals rather than working from the ground up.
“We don’t want to create things from scratch,” Mr. Mendelson said. “We are going to be collaborating with outstanding healthcare organizations nationally to accomplish our objectives. That’s another piece that differentiates this effort from the prior one.”
Morgan Health said its new business is focused on improving employer-sponsored healthcare in the U.S. and bringing meaningful innovation into the industry by targeting insurance and keeping populations healthy. Success for the company will be measured by whether it improves the Triple Aim: quality of care, access to care and cost to deliver care, Mr. Mendelson said. Morgan Health initially will focus its efforts on improving care for JPMorgan Chase employees, but its long-term goals are to become a leader at improving healthcare in the U.S. and to create a successful model other employers can adopt.
“We come at this with the benefit of having 285,000 employees and dependents,” Mr. Mendelson said. “We have a very strong interest in driving quality improvements for them and also creating models that are reproducible across organizations. We are looking to take a leadership role to improve care in the United States.”
Morgan Health said it has three core focus areas at its launch: improving healthcare by investing $250 million into organizations that are improving employer-sponsored healthcare; piloting new benefits for employees; and promoting healthcare equity for its employees and the broader community.
One employee benefit Morgan Health will be piloting is advanced primary care, Mr. Mendelson said. Morgan Health said it is working to create improved primary care capacity to enable employees to better navigate the healthcare system. One example of this is instead of having employees see just a primary care physician, they would be directed to a clinic that leverages more healthcare talent, such as pharmacists and nurses, to improve health outcomes.
Morgan Health said it will work with a range of partners, including provider groups, health plans and other employers. One such organization is CVS Health/Aetna, which is one of JPMorgan Chase’s insurance carriers, Mr. Mendelson said.
“CVS Health has a lot of innovation within the organization that we are not currently tapping into,” Mr. Mendelson said. “It’s a great example of a great American company that is ripe for further partnership and innovation in this effort.”
Morgan Health initially will have 20 dedicated employees, but Mr. Mendelson said the healthcare unit is tapping talent from other existing departments at JPMorgan Chase, including its legal, communications and benefits departments.
“This is a company that is very passionate about leading; there’s a very deep reservoir of support from the organization to accomplish the objectives,” Mr. Mendelson said. “These are objectives that are hard — it will take us time to accomplish and to show meaningful improvement. But there’s a sense that this is so important that there’s going to be a sustained effort in this regard and that we will achieve our objectives together.”
Prior to joining Morgan Health, Mr. Mendelson served as an operating partner at private equity firm Welsh, Carson, Anderson & Stowe. He also is the founder and former CEO of healthcare advisory firm Avalere Health and worked in the White House Office of Management and Budget during the Clinton administration.
Mr. Mendelson said his passion for establishing collaborative partnerships in healthcare will help him succeed in his new role.
A recently retired health system CEO pointed us to a working paper from the National Bureau of Economic Research, which indicates that leading an organization through an industry downturn takes a year and a half off a CEO’s lifespan.
It’s not surprising, he said, that given the stress of the past year, we will face a big wave of retirements of tenured health system CEOs as their organizations exit the COVID crisis. Part of the turnover is generational, with many Baby Boomers nearing retirement age, and some having delayed their exits to mitigate disruption during the pandemic.
As they look toward the next few years and decide when to exit, many are also contemplating their legacies. One shared, “COVID was enormously challenging, but we are coming out of it with great pride, and a sense of accomplishment that we did things we never thought possible.
Do I want to leave on that note, or after three more years of cost cutting?” All agreed that a different skill set will be required for the next generation of leaders. The next-generation CEOs must build diverse teams capable of succeeding in a disruptive marketplace, and think differently about the role of the health system.
“I’m glad I’m retiring soon,” one executive noted. “I’m not sure I have the experience to face what’s coming. You won’t succeed by just being better at running the old playbook.” Compelling candidates exist in many systems, and assessing who performed best under the “stress test” of COVID should prove a helpful way to identify them.
Although urgent care centers deter some lower-acuity patients from a costly emergency department visit, they are not associated with a drop in total healthcare spending, according to a study published in Health Affairs in April.
For the study, researchers used insurance claims and enrollment data from 2008 to 2019 from a managed care plan to understand if the presence of an urgent care center substantially decreased lower-acuity ED visits.
The authors found that the entry of an urgent care center into a ZIP code deterred lower-acuity ED visits, but the effect was small.
The study found that the reduction of just one lower-acuity ED visit was associated with 37 additional urgent care visits. In other words, the number of urgent care visits per enrollee required to reduce one ER visit is 37.
The study authors found that the prevention of each $1,646 lower-acuity ED visit was offset by an increase of $6,237 in urgent care center costs.
As a result, the study authors said that despite ED visits costing more per visit, the use of urgent care centers increased net overall spending on lower-acuity care.
“This study documents for the first time that urgent care centers are associated with increased overall costs for lower-acuity visits across the ED and urgent care settings,” the study authors concluded.