In recent years, we have written extensively about disruptions in healthcare, including the profound disruptions of the internet economy, the rise of consumerism, and the threat of new competition from tech- and retail-savvy competitors. We now face a new disruption with the COVID-19 pandemic that has come upon healthcare and the global economy as a whole with incredible speed and enormous impact.
Strategic planning has been upended, at least in the short term. Where there had been a focus on pruning underperforming service lines, there is now a suspension of most surgical procedures to prepare for surges of patients infected by the coronavirus. Where there had been a focus on reducing excess inpatient capacity, there is now an effort to find additional beds wherever possible, in previously closed facilities, now-vacant hotels, and exhibition halls and convention centers converted into temporary hospitals. Hospitals and healthcare professionals have been recognized as vital not only to the safety and well-being of their local communities, but also to the security and economic health of the nation.
It is too early to speculate on how this crisis will change our national conversation on healthcare; that debate will unfold over the coming months and years. But it is certain that hospitals and health systems are now looking at a “now,” “near,” and “far” that differ in major ways from only a few months ago:
- Now has become a time of dramatic action and financial peril. Cash reserves are being depleted as revenue from surgical procedures has been turned off, and hospitals and health systems devote all available resources to the care of COVID-19 patients. Depending on the duration of the pandemic (and whether the virus resurges after its initial peak this spring), this “now” could be prolonged until a vaccine or effective treatments for the disease are developed.
- Near will be a radically reconfigured healthcare landscape. A host of factors—local severity of the pandemic, impact on local employers, the strength of pre-crisis financial reserves—will stratify hospitals and health systems along a continuum ranging from lightly to heavily damaged. For some organizations, there will be a heightened need to seek partnerships or affiliations.
- Far may be the least affected, to the extent the pandemic has revealed the advantages of larger, integrated systems of care and has demonstrated to consumers and healthcare organizations the benefits of virtual care and more accessible treatment options. But the scale of this crisis is such that our previous understanding of the “far” is likely to be transformed in the months ahead.
This discussion focuses first on how hospitals and health systems will find a path out of the “now,” and then considers where they may find themselves on the “near” side of the COVID-19 pandemic. It then considers the questions these organizations will need to ask to reposition themselves for a “far” that may be changing faster than we currently understand.
Climbing Out of the “Now”
Most hospitals and health systems are almost totally focused on getting through the “now,” but are starting to ask questions about what the path out of the crisis will look like. How much support will federal and state governments ultimately provide to compensate for the heavy losses incurred as hospitals and health systems shut down service lines to open capacity for COVID-19 patients? How long before the coronavirus is fully contained? What will be the impacts of an almost certain recession and high unemployment on future volumes and payer mix?
The difficulties inherent in answering any of these questions are illustrated by considering what is perhaps the biggest question: When can we start surgical procedures again? First and foremost, this will be a safety issue. One strategy might be to shift procedures that were scheduled for a hospital to ambulatory surgery centers (ASCs). This has the advantage of being a fairly easy way to restart procedures, but patients may well ask why a procedure that was not considered appropriate for an ASC three months ago is so now. Health systems might also try to establish a “clean” hospital for elective procedures only, with no COVID-19 patients on site. But will a health system be better able to create a safe environment in a large hospital than in a smaller ASC? Perhaps so, especially if the alternative is to use multiple ASCs, which will make control more difficult. The point is that no answer will be easy and will be accompanied by multiple additional issues that need to be addressed.
The Healthcare Landscape in a Post-Pandemic “Near”
Hospitals and health systems will emerge from the COVID-19 pandemic somewhere along a continuum that ranges from heavily, to moderately, to lightly affected by the pandemic’s impact. Key factors in determining the force of the impact will include:
- Local economy. Have major employers gone out of business or made major workforce reductions? How has payer mix been affected?
- Market situation. Have competitive dynamics shifted as a result of the pandemic? Have there been significant changes in access to healthcare in the market (e.g., increased use of telehealth, non-hospital-based services, etc.)?
- Clinical impact. Has the organization’s response to the pandemic changed its relationship with its physicians, nurses, and other clinicians?
- Financial impact. How much, and for how long, were revenues from surgical procedures reduced? What were the organization’s financial resources going into the pandemic and to what extent have they been reduced? Was the organization already heavily leveraged? How much more debt has it taken on?
- Operational impact. To what extent have operational stress points been revealed (e.g., in supply chain, workforce, leadership, etc.)?
Significant impact in just one of these factors may be enough to heavily damage an institution; in other cases, organizations will be affected by the cumulative effects of a number of factors. Some organizations will emerge relatively unscathed. Organizations will have to realistically assess where they have ended up on the impact continuum, because understanding that position will clarify the choices they have going forward.
Heavily affected organizations will have limited choices. Although damaged, they may still be an attractive acquisition for a stronger organization, depending on their market position or attributes that could be enhanced or rebuilt with some investment. Without a partner, their position will be more tenuous. Political pressures against hospital closures may intensify following the pandemic, but investments (potentially from state or local governments) needed to keep the organization running will unlikely be sufficient to invest in future growth.
Moderately affected organizations may have an opportunity to rebuild with a well-executed recovery strategy and remain viable as an independent organization. If they do seek a partner, they will be able to be more selective and have a stronger negotiating position to determine their future course.
Lightly affected organizations will be in a strong position to build scale and invest in capabilities that build competitive strength in their markets. There likely will be numerous opportunities for growth; however, health systems will be competing against other organizations to secure these opportunities and will need to move quickly and strategically.
The question that will emerge, however, is what healthcare organizations should be moving toward—what, in other words, is the “far”? Although many hospitals and health systems might be asking how they can get back to their pre-pandemic normal, given the level of damage they have sustained, a more appropriate question might be whether they want to go back to the pre-pandemic normal? And if not, what do they need to do to restructure and reposition themselves for the “far”?
A Transformed Vision of the “Far”?
In our past writing on healthcare’s “now,” “near,” and “far,” we have emphasized the inevitable push of the internet economy into the healthcare space, a disruption that was occurring before the COVID-19 pandemic began. A much wider swath of the population has now been introduced to the ease of access and convenience that digital healthcare services can provide. In the near future, it is difficult to imagine that consumers will want to return to waiting rooms crowded with other sick people. In the longer term, it is likely that consumers’ shift toward and preference for digital services wherever possible will become permanent.
We have also emphasized the need for scale, calling attention to a new class of tech-enabled and retail-savvy competitors (e.g., Amazon, Walmart, CVS Health) whose size dwarfs that of the largest health systems today. Apart from these competitive threats, the pandemic has demonstrated other advantages of scale: the ability to leverage different facilities for different purposes, dispersion of risk across multiple markets or geographies, and depths of intellectual talent that can be deployed in different directions (e.g., responding to the immediate needs of the crisis versus forecasting and planning for the future).
We think, in other words, that certain elements of the “far” still pertain, but like everyone else at this time, we have more questions than answers. Some of the questions we find most relevant right now include:
- Will “safety” replace “quality” as the new table stakes, and if so, what will the proof of concept for hospitals and health systems be?
- How might consumer concerns and demand have changed? Will consumers have a stronger point of view on what kind of care they will accept, and what they will not? What does this mean for new care models and delivery and for competitive dynamics in healthcare?
- How might use of new and emerging technologies (e.g. remote monitoring devices) be enhanced and accelerated to evolve care delivery models?
- How have your clinicians (employed and independent) been affected by the crisis, and what does that mean for your go-forward strategy?
- How will assets need to be repurposed or restructured to address concerns over safety or access, or the new competitive environment?
- What role will the supply chain play in supporting your go-forward strategy, and what will be the essential links in the chain?
- What new metrics will be needed to determine if you are successfully positioning your organization for the “far”?
We have lived through many crises, but rarely have we seen so many impacts on society and the economy inflicted in so short a time, here and around the globe. Major crises can cause major transformations. Healthcare, front and center in the current crisis, is unlikely to emerge unchanged. We will be seeking answers to these questions along with you and will do everything we can to help you and your organization find the right path forward.
For more information, contact Mark Grube