Do you Know the Financial Implications of COVID-19 on Hospitals & Health Systems?
To measure a health system’s financial standing, most analysts will review a hospital operating margin and cash position. The operating margin gives an idea about the market and the ability to generate future cash flow, while the cash position gauges if the hospital can handle various projects or tackle potential risks and emergencies. Most healthcare managers understand the importance of liquidity and hospitals are fairly capital-intensive businesses. But as the COVID-19 pandemic continues to wreak havoc globally, U.S. health systems are under tremendous financial and economic pressures.
Health systems are dealing with severe operational disruptions and while expenses are rising, revenue is taking a hit. Just last month, the CMS recommended that healthcare organizations delay elective surgeries and non-essential medical, surgical, and dental procedures during the COVID-19 outbreak. And as research and data have shown, a vast majority of hospitals canceling elective procedures are beginning to experience a real liquidity issue. Even patients on their own are postponing many services that provide key capital for hospitals furthering the financial uncertainty placed throughout hospitals.
Depending on the amount of impact from additional financial relief, hospitals are becoming forced to reduce costs by dismissing large quantities of staff, particularly non-clinical, who are responsible for many key tasks such as maintaining equipment and changing out hospital beds. For example, Tenet Healthcare Corp. has discarded its 2020 guidance, furloughed around 500 full-time positions, and plans to issue another $500 million in debt to boost liquidity amongst the pandemic. With hospitals and health systems on the front lines of the COVID-19 crisis, they are entirely focused on attending the immediate and anticipated patient and provider needs to save lives. However, critical financial questions for the short and long-term effects of COVID-19 will need to be addressed.
Disruptions within health system operations recently explained by KaufmanHall outline key indicators that are creating a liquidity challenge:
- Service Mix Shifts: Healthcare providers are reporting declines in elective procedures, as health systems suspend non-essential services further impending liquidity.
- Workforce Disruption: Organizations need more staff and equipment to manage higher volumes, but face the consequences of added expenses.
- Balance Sheet Stress: As the value of invested assets decline, health systems will have to closely monitor their liquidity needs and investment losses to find a long term solution to regain the necessary cash flow.
The fully operational and financial impacts of COVID-19 are just coming into scope, but it is important to identify that none of the scenarios outlined above will be inevitable or uniform across all U.S. health systems. What is certain in this uncharted territory is that health systems will eventually have to out-innovate the shock and make informed decisions regarding organizational influence over cash flow, liquidity, and strength of credit profile.
So, in the face of a global pandemic, how are providers responding to postponing non-essential services with implementing strategies to revive cash flow?…
The answer is by leveraging modern technology to become quickly implemented with no disruption to the health systems’ current workflow. A patient-centric solution providing non-recourse funding to providers within days is an imperative step to accelerating cash flow and is becoming common amongst the largest U.S. health systems. Despite the crisis disrupting all aspects of healthcare, providers are having to take proactive steps to protect their revenue cycle operations and create a course of action to limit future economic fallout.