- 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.
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.
Dallas-based Baylor Scott & White Health will outsource, lay off or retrain 1,700 employees who work in information technology, billing, revenue cycle management and other support services, according to The Dallas Morning News.
The health system said outsourcing the finance and IT jobs and other support services will help it improve efficiencies and focus on reducing costs in noncore business areas.
About two-thirds of the 1,700 employees will be joining third-party RCM, IT, billing or support staff vendors. About 600 to 650 positions will be eliminated.
Baylor Scott & White said that employees whose positions are being eliminated will be invited to participate in retraining programs.
The retraining program would allow the employees to remain employed at the health system and receive the same pay or higher, depending on their role, according to the report. Some of the retraining programs that will be available are learning to become a certified medical assistant or learning a job in patient support services.
“In no case — in no case — is anyone going to miss a paycheck,” Baylor Scott & White CEO Jim Hinton, told The Dallas Morning News. “We can afford to make these commitments, and we want to do the right thing for the great employees of Baylor, Scott & White. They’ve really done everything we’ve asked and more during this last year.”
This is the third time Baylor Scott & White has announced cost-cutting initiatives related to its workforce since the pandemic began. Last May, 930 Baylor Scott & White employees were laid off, and in December the health system said it would lay off employees and outsource 102 corporate finance jobs.
Mr. Hinton said that Baylor Scott & White has 2,000 clinical positions open, and it is investing in a new regional medical school campus and a joint venture to improve care for the underinsured.
“This is a transition to a new business model, a transition to a new way of working,” Mr. Hinton told The Dallas Morning News.
In the old days, pre-pandemic, the line in the brick-walled basement bar of Grendel’s Den would have consisted of young customers waiting to have their ID cards checked.
These days, says owner Kari Kuelzer, it’s made up of staff members getting checked for the coronavirus.
On a recent pre-opening early afternoon, a half dozen staffers assembled amid the twinkling lights and unoccupied tables, and Kuelzer handed out testing swabs.
“This is our test kit,” she explained, opening a clear plastic bag. “It’s a vial and then 10 swabs. They self-swab. And then it goes in the vial. And off I go to Kendall Square.”
Grendel’s Den, a classic Harvard Square hangout for more than 50 years, has just become the site of a coronavirus experiment: Twice a week, the restaurant will gather nose samples from up to 10 staffers, combine them and take them for processing to the company CIC Health a couple of miles away in Kendall Square.
Combining the samples is known as pooled testing — an increasingly popular way for employers, schools and others on limited budgets to keep an eye out for coronavirus infections. If the pool comes back negative, everyone’s good. If it’s positive, each person needs an individual test.
Kuelzer has been pushing the city of Cambridge and the broader restaurant community to get more testing,” to help us essentially achieve the sort of workplace safety that they achieved at Harvard University over the course of the fall,” she says.
Frequent testing helped Harvard and many other universities keep coronavirus rates low.
“If there’s people in our community in the university setting and at large institutions that are receiving that level of protection, there has to be a way to extend it to people who are not in that bubble of privilege, of being part of a major university,” Kuelzer says.
Until recently, she says, there wasn’t an affordable way to get her staff tested, and she had to ask them to do it on their own. In November, an outbreak hit seven staff members, and Grendel’s closed.
It recently reopened, and she found that testing had evolved to the point that she could get the staff pooled testing, twice a week, for $150 each time.
CIC Health already offers individual tests, and pooled testing to big institutions like schools, says chief marketing officer Rodrigo Martinez.
“And the other piece that is missing is exactly how do you offer pooled testing to a small company, restaurant, organization, team, nonprofit, whatever it is, in a way that they can actually access it?” he says. “And this is exactly the service that we’re piloting in beta.”
By “beta,” Martinez means that the Grendel’s Den arrangement is basically a field test to see how it goes and iron out kinks, and CIC Health isn’t marketing it broadly yet. But the market could be large.
“In theory, every small business that wants testing might be in need and desire of being able to do pooled testing,” he says.
The market could also be temporary. At Grendel’s, Kari Kuelzer says she sees the pooled testing as only a stopgap until the staff can get vaccinated.
It’s a stopgap that patrons can help support if they choose, in a brand new type of tipping: They can buy their server a coronavirus test for $15.
“If you want to help this waitress or that bartender who you care about because they make your day good stay safe, you can buy them a test,” Kuelzer says.
Overall, she says, it’s so far so good for the Grendel’s Den testing experiment. The result from the first round of testing came back last week in less than 24 hours — and it was negative for the coronavirus.