39% of hospitals will operate in the red, up from 25% prior to the pandemic
A new analysis finds more hospitals will operate in the red in 2021 even with a smooth vaccine rollout and reduced COVID-19 hospitalizations. The analysis, prepared by Kaufman Hall, found that 39% of hospitals will have negative operating margins under the most optimistic scenario—significantly higher than the 25% prior to the pandemic.
Half of hospitals would operate in the red under the most pessimistic scenario, with median margins down by 80% compared to the pre-pandemic baseline, the analysis showed.
Some of the most critical hospitals are the hardest hit
Rural hospitals are vital to the overall health of America’s population. These hospitals provide essential healthcare services to 20% of the population in the United States. Without these hospitals, the health of many Americans would suffer, as they wouldn’t have adequate access to healthcare providers.
For rural hospitals, the outlook is even more problematic. The most optimistic scenario would result in a median margin that is 38% below the pre-pandemic baselines, but that percentage would rise to a 100% decline under the most pessimistic scenario.
The CDC is trying to expand testing and contact tracing in underserved communities, and has updated their guidance on who should get tested with what kind of tests. The CDC will also direct $2.25 billion to addressing health disparities and COVID-19.
"This investment will be monumental in anchoring equity at the center of our nation's COVID-19 response—and is a key step forward in bringing resources and focus to health inequities that have for far too long persisted in our country," CDC Director Rochelle Walensky, MD, MPH said in a press statement.
Marcella Nunez-Smith, MD, MHS, head of the health equity task force, also said the Biden administration was allocating $150 million toward monoclonal antibody therapies in underserved communities.
The optimistic outlook
The most optimistic scenario assumes that hospitals experience a consistent, complete recovery of patient volumes, vaccine distribution and administration go smoothly, and the country faces a continued ramp-down of COVID-19 cases. The most pessimistic scenario assumes slow, partial recovery, delayed vaccine rollouts and continued logistical challenges, and cyclical surges of COVID-19.
However, CDC Director Rochelle Walensky, MD, recently warned of “another avoidable surge” of COVID-19 this spring as new variants of the virus spread as states relax mitigation measures, such as mask-wearing, social distancing, and avoiding crowds.
“Increasingly, states are seeing a growing proportion of their COVID-19 cases attributed to variants,” Walensky added, estimating that 52% of cases in California, 41% in Nevada, and 25% in Arizona are attributed to the newly identify variant B1427/B1429.
However, neither of the new variants of concern are thought to escape the effectiveness of currently approved vaccines, but therapeutics, including monoclonal antibody treatments, may be slightly less effective. This is why all public health officials are encouraging vaccine adoption.
Costs are rising
Costs continue to increase amidst declining revenues. Salary costs, prescription drug costs and supply chain costs are soaring.
A positive operating margin is crucial for any business to survive the long-term. But for hospitals, in particular, positive margins enable investments in new treatments, innovative technologies, clinicians and other staff, and more facilities. It would also allow hospitals to build reserves in preparation for an uncertain future after the pandemic.
Any previous long-term financial plan will need to go back to the drawing board to account for the post-COVID-19 world. The healthcare consulting team from Plante Moran shares some recommendations for updating financial plans.
The financial plan needs to factor in more nonclinical staff working from home, including the technical support they’ll need and how to use the real estate they leave behind. Staff levels will likely need to be adjusted to ensure the institution is right-sized for the new demands.
Investing and staffing for the transition to even more telehealth services also needs to be a central part of the financial forecast.
The third quarter is the time to start implementing the changes you’ve prioritized in the financial plan. The key goals are likely ensuring the right staffing levels (potentially using labor productivity benchmarking methods), making the right investments for telehealth and updating revenue cycle management to ensure the organization is being paid for all services provided.
By the fourth quarter, the hope is that the virus will be in retreat as a result of vaccinations, continued social distancing and an element of herd immunity. As a semblance of normality returns and revenues rebound, healthcare leaders should have more space to focus on addressing the weaknesses exposed by the pandemic, such as the failure of many emergency departments to handle the surge in patients.
This is also the time to think about how best to capture the opportunities presented by technological and demographic changes. Some 10,000 people turn 65 every day in the U.S., representing a huge opportunity for healthcare institutions to improve the delivery of services and leverage the trust that they have hopefully built with their communities during the pandemic.
Let’s take on the revenue cycle together
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We’re all in this together. Contact us to learn more about maximizing reimbursement and achieving a healthier bottom line so you can focus on what really matters—saving lives.