Post-COVID-19 Financial Environment & Path Forward for CAHs
Julianne Kipple, Healthcare Shareholder
September 13, 2023
As hospitals emerge from the post-COVID-19 financial environment, they face unprecedented financial pressures from multiple sources. This article aims to identify and discuss these financial pressures, understand how they impact hospital operations, and discuss ways hospitals can navigate and make strategic plans for 2024 and beyond to put their facility on the best path toward financial stability and growth.
Post-COVID-19 Financial Pressures
Rising Costs & Inflation
Labor costs per adjusted discharge increased by 37% in 2022 compared to 2019, drug costs increased by 37% per adjusted discharge, and supply costs increased by 22% per adjusted discharge (1). Supply chain disruptions have led to higher manufacturing, packaging, and shipping costs, which translates into higher prices for supplies, drugs, and other operating expenses.
AHA (American Hospital Association) reported a 57% increase in wage rates paid to contract labor firms and a 139% increase in the number of contract labor FTEs, leading to a 258% increase in total contract labor expense (2).
Eroding Profit Margins
69% of health systems reported 2022 operating margins below pre-pandemic performance. (1)
End of COVID-19 Relief Funding Cash Infusion
Hospital days cash on metrics continue to decrease compared to 2021. Can we maintain current spending levels without cash from COVID-19 funding?
Shifting of Payor Mix
It is estimated that 15 million Medicaid enrollees will lose coverage after the end of the PHE, and more than 50% of seniors will soon be enrolled in Medicare Advantage plans versus traditional Medicare plans (1). How will this shift impact utilization, revenue, and profitability, including charity care and bad debt?
Reimbursement Rates and Payor Complexity
Reimbursement rates are not keeping pace with increased costs. Set limits on percentage increase on charges for commercial contracts are lower than the increase in costs, leading to a net loss year after year. How will the shift to Medicare Advantage change your reimbursement, especially for smaller CAHs and hospitals? Is our revenue cycle team keeping up with the increased complexity of payor contracts?
Shifting of Service Mix
How will telehealth changes after PHE impact hospitals? Continued shift to outpatient care from inpatient care, which may negatively affect profit.
Post-COVID-19 Financial Strategies
1. Evaluate Workforce Solutions
Fully utilize information technology and automation possibilities.
Development of an employee retainment and training program.
Update employee incentive and bonus agreements based on workshare, efficiency/productivity, and length of employment.
Offering more attractive shift differentials to alleviate off-hours/weekend coverage staffing challenges.
Review other employee benefits offered, including PTO.
Research networking opportunities for sharing staff and resources. Can we work with other CAHs in the area to establish an employee-sharing program?
Conduct operational walkthroughs of staff workflows for waste, redundancy, inefficiencies, admin, and clinical.
Match tasks being performed to proper staff levels – provider level (NP vs. MD) discussion but can be reviewed for all jobs in the organization.
Review remote/hybrid work policies to enhance flexibility that may increase job satisfaction/recruitment efforts.
Review jobs with high turnover. Does outsourcing these jobs result in cost savings when considering the cost of turnover and benefits? Common areas of outsourcing in 2022 include revenue cycle, environmental services, IT, and food services, according to the Kauffman Hall 2022 State of Healthcare survey.
Complete a financial projection of fixed and variable expenses considering expected volume levels and service mix.
Calculate expected days cash on hand and other operational metrics using the financial projection. Identify if spending is sustainable.
Complete a labor cost analysis, including workforce solutions discussed above.
Review the purchasing process. Is there an established purchasing process, purchasing limits and approvals, and accountability?
Renegotiate current purchasing contracts to ensure competitive pricing, including analysis of group purchasing organizations or other ways to gain volume-based pricing through hospital associations or other local networks.
Ability to standardize and bundle contracts?
Establish a method to review spending on drugs. Is there a less expensive alternative? Compare generic vs. brand-name drugs.
Review full utilization of 340b program understanding program complexities currently.
Includes review of current insurance policies and employee benefit contracts.
Review plant operations and energy efficiency opportunities.
3. Revenue Cycle Optimization
Review revenue cycle workflows to ensure the process uses the fewest steps possible to increase efficiency and timeliness of payment. Should include:
Review and accumulate trends in claim denials & resubmissions, including review of pre-authorization requirements.
Incorporate any automation or data analytics to provide accurate data.
Collection policy and accountability
Timeliness of collections and front desk operations.
Staff accuracy and productivity.
Payor Contract Review and Audit
Are we getting paid what we should? Scrutinize Medicare Advantage contracts.
Grants and Contributions
Review funding opportunities you may qualify for from various sources.
HRSA (Health Resources and Services Administration)
Rural Health Information Hub
4. Financial Modeling and Data
Complete a service line/location profitability review.
Do we know which service lines and/or locations are making a positive bottom line?
Utilize the Medicare cost report to incorporate overhead estimates.
Incorporate expected changes in the payor mix.
Analyze market demand data and out-migration data.
Do we want to expand certain service lines based on market demand?
Are patients leaving our market to get certain services someplace else?
Advances in data available - check with your hospital association.
Addressing the financial pressures and challenges facing hospitals will take management and board education to create a strategic financial plan for long-term financial stability and sustainability. Commitment to that plan through effective project management and follow-up is important to continue to monitor progress. Building financial forecasts and metric dashboards based on the solutions that best fit your facility can offer accountability and the ability to monitor your financial progress. Learn more about our healthcare accounting and consulting services, or contact us with any questions.
Sources 1. “An Industry Under Pressure.” Advisory Board. 2022 2. AHA and Syntellis Performance Solutions, “Hospital Visits: Financial and Operational Trends, Workforce Pressures Take Their Toll in 2022.” 3. “2022 State of Healthcare Performance Improvement“: Mounting Pressures Pose New Challenges.” Kauffman Hall. October 2022 4. “Executive Briefing – 16 Things CEOs Need to Know in 2023.” Advisory Board. 2022 5. “10 Things to Know About the Unwinding of the Medicaid Continuous Enrollment Provision.” Kaiser Family Foundation, Jennifer Tolbert & Meghana Ammula. June 9, 20236. “2022 Strategic Planning Survey.” Advisory Board. May 2022
Julianne Kipple is a Healthcare Shareholder at Lutz. She began her career in 2008. Her expertise is in accounting and consulting services for healthcare facilities, including outsourced CFO services, Medicare and Medicaid reimbursement, and Medicaid Disproportionate Share Surveys (DSH).
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