This article, by Nick Hut, first appeared in HFMA.org.
Article Summary
- Finance executives with hospitals and health systems are looking at a variety of strategies to bolster performance amid the COVID-19 pandemic.
- Eliminating waste and optimizing processes are especially vital in the current environment, and organizations also are looking at whether to condense their range of services.
- Strategic partnerships could become more attractive as organizations seek new markets and opportunities to grow some of their service lines.
As hospitals and health systems look to a post-COVID-19 future, they can consider various options for staying on solid financial footing and eventually getting onto a growth track.
Some of those options were described in a pair of recent reports that examined ongoing healthcare finance trends.
A report from CommerceHealthcare® notes that the “massive disruption wrought by the coronavirus crisis ensures that extensive financial management will predominate in 2021. Executives will need to balance cost savings, investment returns and financing.”
Meanwhile, drawing on responses from a survey of 100 CFOs, most of whom represented for-profit provider organizations, the BDO Center for Healthcare Excellence and Innovation reports that “the industry is moving forward with haste to form partnerships and solidify operating models that will help meet areas of patient need and overcome areas of distress.”
Of the survey respondents, 46% have only 30 to 60 days cash on hand and one in three are focused on cost reduction as a strategic initiative.
“That’s very consistent with some of the dialogue that we have on a daily basis with our clients,” said Jim Loughlin, national leader for business restructuring and turnaround services with BDO. “Everyone’s looking to get more efficient — to take costs out and to be able to get through the storm.”
BOOSTING MARGINS THROUGH ENHANCED EFFICIENCY
Ensuring efficiency in revenue cycle processes specifically is one way to shore up much-needed revenue, said Rick Heise, senior vice president for specialty healthcare services with CommerceHealthcare®.
“What we’ve seen is there are still investments in technology that are necessary,” Heise said. “A lot of the big platform decisions [already] have been made. But then there’s this sort of last mile of automation, which is, how do you automate and get out of the paper world so you get automated remittances and automated payments?
“There’s still a fair amount of work in healthcare, particularly on the revenue cycle side, to get that done. We’re seeing investments in that right now.”
Beyond reducing waste, payment automation can be a much-needed revenue stream, Heise added. Specifically, hospitals and health systems can generate revenue by optimizing the processes through which they pay suppliers.
“Suppliers have a need to get paid in an efficient and effective way,” Heise said. “What has happened in the industry is that getting those things on an automated rail, suppliers are willing to participate in that and pay for that. And so health systems can actually create a revenue stream out of that payment automation activity.”
Many hospitals have such programs but may not be making best use of them.
“That’s probably where the opportunity lies,” Heise said.
CONSIDERING POSSIBLE CHANGES IN CARE OPERATIONS
Responses to the BDO survey indicated a focus on examining service lines and potentially divesting areas in which the organization doesn’t perform as well.
“Even amid optimism that healthcare organizations are on the right path for recovery, for more than one in three, that path will require restructuring or reorganization,” the report states.
Hospitals and health systems are evaluating “practice areas they’ve invested in to make sure they are providing a return,” Loughlin said. “Many are just taking a good, hard look at the data analytics of their operation.”
Such assessments may entail consideration of “the number of beds that you have, staff physicians associated with certain practice areas and [deciding] whether that’s where your focus should be — or are there other areas of practice that you should beef up and put more resources into because that’s where the demand is?” Loughlin said. “Obviously, payer mix and reimbursement issues come into play as well in making those determinations.”
Some survey respondents planned to let go of certain assets, with behavioral health (24%) and retail properties (23%) cited most frequently.
USING PARTNERSHIPS TO ESTABLISH A STRONGER POSITION
A rigorous assessment of operations may provide a roadmap for hospitals and health systems to improve their financial performance, but many also are looking at external solutions.
In the BDO survey, which consisted largely of for-profit hospitals, 39% of respondents planned to focus on securing private equity (PE) funding. PE firms “are on the hunt for new opportunities, and they have capital available to deploy,” Loughlin said.
“Once we got through the first 3 1/2 or four months of COVID, the financial markets really reopened for business in a pretty impressive way,” Loughlin added. “The banks were lending again, and there’s plenty of equity capital available, looking for a home.
“I do expect that with the amount of liquidity in the market, low interest rates and a desire to do transactions, that 2021 will be a really busy year.”
Although struggling organizations may need to be acquired to keep their doors open, networks and partnerships also are viable options in many cases.
Efforts to leverage assets “by having various affiliates and partners structured in a variety of ways to help to maximize the revenue-generating capability and thus the profitability of the assets you control — those are always of interest,” Loughlin said. “It takes certainly less dollars to do that, more creativity, more partnership and maybe more management ‘elbow grease,’ but those are tremendous opportunities to create value.”
Such approaches allow healthcare providers to offer services beyond their core geographical market, including to underserved areas, Heise said.
The transition away from fee-for-service is another motivating factor in strategic partnerships these days, he added. On their own, many hospitals can’t provide the range of services that are needed to succeed in alternative payment models.
“In order to provide population health, you have to have a network of services,” Heise said.