Over the past few weeks we’ve fielded a spate of questions from health system executives wondering about their peers’ plans for employees to return to the office. Some who have set a January 1st target for employees to return to their physical workspaces are now reconsidering.
“The first of the year sounded good back in the summer, but now it seems kind of arbitrary,” one system COO told us. “And if we really are entering a winter ‘third wave’ of COVID, it may not be a sound decision for health reasons, either.”Many have been positively surprised by the levels of communication and productivity since many employees began telecommuting full-time back in the spring. “It would be one thing to tell people they had to come back if the work wasn’t getting done. But for many, productivity has actually been better,” one executive shared.
Eight months into the work-from-home experiment (and with a handful of high-profile companies like Twitter saying employees can work from home forever), some leaders are now wondering whether they too should allow some staff to work from home permanently. The opportunities are obvious: real estate and overhead cost savings, and a potential boost to employee engagement and retention. But contemplating a long-term shift raises big questions.
As remote workers in expensive markets look to move to lower-cost cities, or even to states with lower tax rates, does a geographic connection to the area matter? As new staff who have never met in person are added, can culture and teambuilding be sustained? And how to blend operations and communication across remote staff and those who work in the office, by choice or necessity? (“In-person meetings are great, Zoom meetings have gotten better, but the ones where half of us are in a conference room and the other half are dialing in feel like a death knell,” one physician leader told us.)
The pandemic has likely launched a lasting shift toward “work anywhere”. But in order to capture the benefits of remote or flexible work, leaders must invest time and resources to rethink and transform the way they onboard, manage, operate, and communicate with the hybrid teams of the future.
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.
The easiest way to keep abreast of this blog is to become a follower. You are then notified of all updates as they occur. To become a follower, click the “Following” bubble that usually appears near each web page’s bottom.
I encourage you to use the comment section at the bottom of each article to provide feedback and stimulate discussion. I welcome input and feedback that will help me to improve the quality and relevance of this work.
This article is an original work. I copyright this material with reproduction prohibited without attribution. I note and provide links to supporting documentation for non-original material. If you choose to link any of my articles, I’d appreciate a notification.
If you would like to discuss any of this content, provide private feedback or ask questions, I may be reached at ras2@me.com.
For the past three years, Kaufman Hall has surveyed hospitals and health systems on their performance improvement and cost transformation efforts. This year, these efforts met an historic challenge with the COVID-19 pandemic.
The pandemic’s impacts have been severe. Entire service lines were shut down as state governments required or strongly encouraged suspension of elective and non-emergency procedures, in part to conserve critical resources—including personal protective equipment—in the early days of the pandemic. Supply chains were disrupted, with organizations that had come to rely on “just in time” inventory practices scrambling to secure the resources needed to ensure the safety of patients and frontline clinical staff. The healthcare workforce came under incredible pressure, confronting a crisis that threatened to overwhelm the health system’s capacity to treat patients.
In a year unlike any other, our annual survey moved away from the questions of earlier years. We have focused on the impacts of COVID-19 on hospital and health system performance. Then, through interviews with survey respondents on the front line of the battle with COVID-19, we have sought to understand how health system leaders are seeking to find a path forward amid uncertainty that will likely stretch through 2021, if not beyond.
Key findings from this year’s report include the following:
Financial viability. Approximately three fourths of survey respondents are either extremely (22%) or moderately (52%) concerned about the financial viability of their organization in the absence of an effective vaccine or treatment.
Operating margins. One third of our respondents saw year-over-year operating margin declines in excess of 100% from Q2 2019 to Q2 2020.
Volumes. Volumes in most service areas are recovering slowly. In only one area—oncology—have a majority of our respondents seen volumes return to more than 90% of pre-pandemic levels.
Expenses. A majority of survey respondents have seen their greatest percentage expense increase in the costs of supplying personal protective equipment. Nursing staff labor is in second place, cited by 34% of respondents as their most significant area of expense increase.
Healthcare workforce. Three fourths of survey respondents have increased monitoring and resources to address staff burnout and mental health concerns.
Telehealth. More than half of our respondents have seen the number of telehealth visits at their organization increase by more than 100% since the pandemic began. Payment disparities between telehealth and in-person visits are seen as the greatest obstacle to more widespread adoption of telehealth.
Competition. Approximately one third of survey respondents believe the pandemic has affected competitive dynamics in their market by making consumers more likely to seek care at retail-based clinics.
A former worker at Maury Regional Medical Center in Columbia, Tenn., was charged with stealing nearly $800,000 worth of medical supplies from the hospital and selling them online for his personal benefit, Williamson Source reported.
Former system coordinator Tommy John Riker allegedly stole $798,265 worth of supplies from the hospital between 2017 and 2019. He worked in the hospital’s supply chain department and was responsible for purchasing and managing items in the hospital’s inventory control system.
His job allowed him to steal items from the hospital’s inventory and manipulate the inventory to make it seem the supplies were given to staff, according to investigators from Tennessee’s Comptroller’s Office, the Williamson Source reported.
The stolen supplies include needles, wound dressings and surgical dressings, according to the comptroller’s report.
Mr. Riker was indicted on one count of theft over $250,000 and 54 counts of money-laundering.
Trinity Health Michigan is raising its minimum wage to $15 per hour for hospital and medical group employees, the organization announced in an Oct. 19 news release.
The wage increase will affect 2,100 full- and part-time employees at Norton Shores-based Mercy Health and Canton-based Saint Joseph Mercy Health System, and their medical groups, IHA, St. Joe’s Medical Group and Mercy Health Physician Partners.
Employees affected by the wage increase include non-union environmental services workers, medical assistants, patient companions, food and retail services and transporters.
Trinity Health Michigan officials said an additional 6,000 employees making between $15 to $19 an hour will also “have their wage adjusted in order to maintain meaningful distinctions in pay.” They said the additional wage increases are to improve pay for a large number of employees, and help retain and attract talented workers.
“Our dedicated and compassionate employees are at the heart of what makes our health ministry remarkable,” Rob Casalou, president and CEO of Trinity Health Michigan, said in a statement. “As we continue to face the COVID pandemic and work together to address economic challenges, we want to recognize our employees whose commitment and talent have enabled us to care for our communities during this challenging time. These investments in our people are part of an overall philosophy to offer equitable and market-competitive pay and benefits for our staff, as together we build a strong future.”
Trinity Health Michigan officials said eligible employees are still slated to receive their annual wage increases for 2020-2021, and no increases are planned in medical health plan premium contributions for employees for 2021. Additionally, they said the base minimum of the employer’s core contributions will climb from $1,200 to $1,400 for calendar year 2021.
Mercy Health and Saint Joseph Mercy Health System are part of Livonia, Mich.-based Trinity Health’s Michigan region. Mercy Health serves the Grand Rapids, Muskegon, Shelby and the Lakeshore communities, and Saint Joseph Mercy Health System has hospitals in Ann Arbor, Chelsea, Howell, Livonia and Pontiac, according to Trinity Health’s website.
Here are nine hospitals and health systems with strong operational metrics and solid financial positions, according to reports from Fitch Ratings, Moody’s Investors Service and S&P Global Ratings.
1. St. Louis-based Ascension has an “AA+” rating and stable outlook with Fitch. The system has a strong financial profile and a significant presence in several key markets, Fitch said. The credit rating agency expects Ascension will continue to produce healthy operating margins.
2. Phoenix-based Banner Health has an “AA-” rating and stable outlook with Fitch and S&P. Banner’s financial profile is strong, even taking into consideration the market volatility that occurred in the first quarter of this year, Fitch said. The credit rating agency expects the system to continue to improve operating margins and to generate cash flow sufficient to sustain strong key financial metrics.
3. Cincinnati-based Bon Secours Mercy Health has an “AA-” rating and stable outlook with Fitch. The health system has a good payer mix, a leading position in several of its markets and adequate margins to support its growth, Fitch said. The credit rating agency expects the system to maintain strong operating profitability.
4. Children’s Hospital of Philadelphia has an “Aa2” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with S&P. The hospital has a strong market position and healthy liquidity, Moody’s said. The credit rating agency expects CHOP’s market position and brand equity will support its recovery from disruption caused by COVID-19.
5. Milwaukee-based Children’s Wisconsin has an “Aa3” rating and stable outlook with Moody’s and an “AA” rating and stable outlook with S&P. The health system has strong cash flow margins, Moody’s said. The credit rating agency expects the health system’s financial performance to remain solid, given its commanding market presence and demand for services.
6. Philadelphia-based Main Line Health has an “AA” rating and stable outlook with Fitch. The credit rating agency expects the system’s operations to recover after the COVID-19 pandemic and for it to resume its track record of strong operating cash flow margins.
7. Midland-based MidMichigan Health has an “AA-” rating and stable outlook with Fitch. The system has generated healthy operational levels through fiscal year 2020, and Fitch expects it to continue generating strong cash flow.
8. Columbus, Ohio-based Nationwide Children’s Hospital has an “Aa2” rating and stable outlook with Moody’s. The system has a strong market position in pediatric services in Columbus and the broad central Ohio region, and its advanced research capabilities will support volume recovery from disruption caused by COVID-19, Moody’s said. The credit rating agency expects Nationwide Children’s margins to remain strong and for cost management initiatives and volume recovery to drive improvements.
9. Chicago-based Northwestern Memorial HealthCare has an “Aa2” rating and stable outlook with Moody’s. The health system had strong pre-COVID margins and liquidity, Moody’s said. The credit rating agency expects the system to maintain strong operating cash flow margins.
The financial challenges caused by the COVID-19 pandemic have forced hundreds of hospitals across the nation to furlough, lay off or reduce pay for workers, and others have had to scale back services or close.
Lower patient volumes, canceled elective procedures and higher expenses tied to the pandemic have created a cash crunch for hospitals. U.S. hospitals are estimated to lose more than $323 billion this year, according to a report from the American Hospital Association. The total includes $120.5 billion in financial losses the AHA predicts hospitals will see from July to December.
Hospitals are taking a number of steps to offset financial damage. Executives, clinicians and other staff are taking pay cuts, capital projects are being put on hold, and some employees are losing their jobs. More than 260 hospitals and health systems furloughed workers this year and dozens others have implemented layoffs.
Below are eight hospitals and health systems that announced layoffs since Sept. 1, most of which were attributed to financial strain caused by the pandemic.
1. Citing a need to offset financial losses, Minneapolis-based M Health Fairview said it plans to downsize its hospital and clinic operations. As a result of the changes, 900 employees, about 3 percent of its 34,000-person workforce, will be laid off.
2. Lake Charles (La.) Memorial Health System laid off 205 workers, or about 8 percent of its workforce, as a result of damage sustained from Hurricane Laura. The health system laid off employees at Moss Memorial Health Clinic and the Archer Institute, two facilities in Lake Charles that sustained damage from the hurricane.
3. Burlington, Mass.-based Wellforce laid off 232 employees as a result of operating losses linked to the COVID-19 pandemic. The health system, comprised of Tufts Medical Center, Lowell General Hospital and MelroseWakefield Healthcare, experienced a drastic drop in patient volume earlier this year due to the suspension of outpatient visits and elective surgeries. In the nine months ended June 30, the health system reported a $32.2 million operating loss.
4. Baptist Health Floyd in New Albany, Ind., part of Louisville, Ky.-based Baptist Health, eliminated 36 positions. The hospital said the cuts, which primarily affected administrative and nonclinical roles, are due to restructuring that is “necessary to meet financial challenges compounded by COVID-19.”
5. Cincinnati-based UC Health laid off about 100 employees. The job cuts affected both clinical and non-clinical staff. A spokesperson for the health system said no physicians were laid off.
6. Mercy Iowa City (Iowa) announced in September that it will lay off 29 employees to address financial strain tied to the COVID-19 pandemic.
7. Springfield, Ill.-based Memorial Health System laid off 143 employees, or about 1.5 percent of the five-hospital system’s workforce. The health system cited financial pressures tied to the pandemic as the reason for the layoffs.
8. Watertown, N.Y.-based Samaritan Health announced Sept. 8 that it laid off 51 employees and will make other cost-cutting moves to offset financial stress tied to the COVID-19 pandemic.
Some rural hospitals that were already struggling are now in serious financial trouble due to the coronavirus.
The suspension of elective surgery and non-urgent care in most states led to an abrupt drop in patient volumes and hospital revenue. That loss, combined with the cost of preparing for COVID-19 protections for patients and employees, has forced rural hospitals into deeper distress. It’s especially important in these challenging circumstances to keep a close eye on key metrics that gauge a hospital’s financial health. By monitoring indicators, creating transparency and responding swiftly to warning signals of financial distress, hospitals can stave off bankruptcy or closure and establish a new path toward long-term sustainability.
A Shared Responsibility
Signs that a hospital is headed for, or already in, financial distress include obvious indicators such as declining revenues or a dip in patient volume. Although some distress signals seem loud and clear, problems persist at many hospitals due to lack of communication and financial assessment across the enterprise. Too often, it’s left to the CFO to monitor overall financial health by measuring against budgets and recent trends. However, a regular review of key metrics should be a shared responsibility for the entire healthcare leadership team.
Five Data Points to Review
Hospitals may need to adjust key targets to bring them in line with what’s realistically achievable while the pandemic persists, particularly when it comes to productivity, PPE costs and net revenue metrics. Think wisely and as a team about how to reassess targets. The following data points should be monitored regularly.
Aggregate volume and provider utilization trends. This data can offer a big-picture perspective to leaders and managers across departments.
Operating ratios, including expenses as a percentage of net operating revenue. Make sure costs such as labor, supplies and purchased services remain in check.
Labor costs relative to patient volume. Measure productivity in each department against department specific staffing targets as well as the overall FTE per adjusted occupied bed target for the hospital as a whole.
Patient revenue indicators. These include bad debt percentage and net to gross percentage by payer class. Are there shifts in payer mix that need to be addressed?
Liquidity ratios. These include net days in patient accounts receivable and cash collections as a percentage of net revenue. What steps can be taken to improve cash flow?
Information Gathering
Hospital leadership should conduct a monthly review of the key measures listed above. In addition, procedures should be put in place by the hospital’s finance department, with input from department managers, to produce accurate monthly stats and financial performance metrics to facilitate these periodic reviews. Annually, take a closer look at these financial indicators, as these will form the basis of strategic planning.
Federal Funding
The COVID-19 crisis reinforces the need for financial diligence and discipline. Rural hospitals received federal funding to help them during the crisis, and this created another layer of data to monitor. Whether in the form of a CARES Act grant, a PPP loan or some other type of funding, these outlays must be closely controlled, properly managed and restricted in use so the hospital does not run out of cash. In certain cases, the federal government will require hospitals to document the use of funds. For example, for CARES Act stimulus payments, hospitals must provide attestation (quarterly beginning in July) that funds are used for COVID-related costs and COVID-related loss of revenue. In any case, CHC recommends that hospitals set up a tracking system to account for these funds. Download a financial dashboard to help.
Connect the Dots
Regular reviews of financial indicators can identify operational best practices, support strategic planning efforts, create accountability, and, if necessary, redirect financial sustainability efforts. The COVID-19 crisis accelerates the timeline during which financial improvements must be made.
The most critical element of this entire process is answering, “Why?” This means finding the root causes for financial difficulties. Another critical element is clear communication of expectations and goals across hospital leadership in order to accomplish desired changes. The team, armed with data and clear objectives, can then get to the root of any problems.
Oakland, Calif.-based Kaiser Permanente says the 30 percent price hike Salem (Ore.) Health is seeking for Kaiser insurance members in the Salem market is too steep. Salem Health argues the increase is justified, according to The Lund Report.
Kaiser and Salem Health last negotiated their agreement seven years ago. Salem Health says it’s seeking a steep increase because prices under the current agreement lag the market by 30 percent.
“Over the past year, Salem Health has consistently communicated with Kaiser the need for a new, market-based contract,” Salem Health said in a statement to The Lund Report.
The old contract expired two weeks ago, and talks between Kaiser and Salem Health are at a stalemate. Kaiser says the price hike is unreasonable and excessive.
“These overinflated prices are unnecessary, and they are not the direction we want to be going regionally and nationally,” Caroline King, MD, a physician leader at Kaiser in Salem, told The Lund Report. “And so if we feel there is a player in the market that is doing this, it is for us to speak up.”
Any agreement entered into between the organizations will affect the healthcare costs of about 40,000 Kaiser insurance members in the Salem market, according to the report.
Registered nurses at Hartford HealthCare’s Backus Hospital in Norwich, Conn., are launching a two-day strike Oct. 13 over alleged unfair labor practices, according to the union that represents them.
Backus Federation of Nurses, AFT Local 5149, which represents approximately 415 registered nurses at Backus Hospital and its partner medical facilities, and the hospital have been negotiating since June to resolve contract issues around patient care, workplace safety, and recruitment and retention, according to the union.
AFT Local says members want a fair contract that protects workers and patients, provides better access to personal protective equipment and allows the hospital to retain skilled registered nurses. However, the union contends the hospital has failed to bargain for a fair contract.
“We’d rather be at the bedside caring for our patients and hope a mutual resolution can be reached; but we cannot allow unfair labor practices to stand,” union President Sherri Dayton, RN, said in a statement shared earlier this month with Becker’s Hospital Review. “That’s why we marched on Hartford HealthCare’s executives to announce that we’re on strike if a settlement is not reached by Oct. 13.”
Nurses authorized a strike in September over these issues and issued a strike notice on Oct. 9.
Backus Hospital President Donna Handley, BSN, RN, said in a statement that the hospital has tried to avoid a strike and, over 23 bargaining sessions and using federal mediators, has continually addressed issues such as personal protective equipment, staffing and additional accommodations for breastfeeding.
The hospital’s offer includes wage increases for registered nurses amounting to 12.5 percent over three years, additional paid time off for 82 percent of registered nurses, and a 2 percent reduction to the cost of healthcare premiums.
Ms. Handley said the hospital has also offered to retain daily overtime for registered nurses and provided staff with additional paid time off during the pandemic and other support.
“In all of these and other ways, Backus Hospital has shown that we respect our nurses, we are prepared to find common ground, and we want to reach agreement on a fair contract,” she said. “The union, unfortunately, is prepared to strike, causing an unprecedented degree of disruption during an unprecedented health crisis.”
She said Backus Hospital will remain open during the strike and programs and services will remain accessible to community members.
HENRY KOTULA 