More from Ken
The other day, I ran across the word “innumeracy.” It is admittedly an unusual word, but innumeracy means a struggle to apply numbers and math.
If ever there was a time when healthcare executives are struggling with numbers of all sorts, that time is now. But now is absolutely not the time to be innumerate.
The most dangerous fallacy about fighting the financial effects of COVID-19 is that it’s necessary to wait for the current uncertainty to clear before developing the financial foundation of an essential recovery plan. We will be living with uncertainty arising from COVID-19 for an indeterminate period of time. We do not know how many COVID-19 patients will remain in America’s hospitals over the coming months. We do not know exactly when and in what volume elective surgical procedures will return. And we do not know the full state of the economic damage in the wake of COVID.
Facing this level of uncertainty, organizations must have the very best and most nuanced financial plans they have ever had, and the sooner they start developing those plans, the sooner they can regain financial control over their healthcare system.
Leading healthcare organizations are not waiting for clarity. At the same time, they are in the throes of an unprecedented emergency response, they are also standing up a recovery process that charts a path to the post-COVID environment. In broad strokes, here is what that process looks like:
Assess the financial damage. Determine the volume and revenue loss resulting from COVID-19; the unbudgeted expenses; and the effects on profitability, liquidity, and capital position.
Understand the gap that this financial damage creates. The financial and strategic plans of most organizations aim to close a gap between a current and desired financial performance. The financial damage of COVID-19 creates a new and far larger gap that needs to be precisely quantified.
Assess options for closing the gap. Next organizations need to figure out how to close a gap that is far larger than their original financial plans contemplated. For almost every organization, this is a gap that will not be fully closed by resources such as federal emergency funding or a recovery of lost volume and revenue. Emergency funding will help, but will not make hospitals financially whole, and hospitals will likely be caring for unknown volumes of COVID-19 patients for some time to come, which will continue to affect operations, non-COVID volumes, and revenue.
Reworking the strategic-financial plan. With the impact of COVID-19, most organizations will find that their existing strategic and capital plans are no longer financially feasible. So in addition to doing the very best to close the financial gaps, hospitals will need to both revise their strategic objectives and look differently at their capital expenditures. There needs to be a real precision in this exercise. Different scenarios for the virus will play out over the coming weeks and months. Organizations need to model the relationship between those scenarios and volume, revenue, strategies, and capital plans. With such modeling, organizations can be ready to act depending on how the pandemic evolves and how both organizational revenue and expenses are impacted on month-to-month and maybe even week-to-week bases.
This is a numeric effort.
It requires demand modeling, data analysis, and financial planning that is very likely more sophisticated than any most hospital organizations have ever undertaken.
And this planning needs to be done immediately. Where there are options to close this new financial gap, organizations need to get started right away to determine what the options are. Where there are changes in how healthcare is delivered, organizations need to map out those complex changes as soon as possible. These efforts need to be part of a coordinated, data-driven recovery plan.
All of this activity, all of this assessment, all of this planning, and all of these changes are built on a foundation of impeccable financial literacy.
At the time of this crisis, healthcare is now all about action—doing whatever it takes to ensure that communities get the care and services they need. At the same time, getting through this crisis and back into financial balance requires the best possible recovery plan guided by a sophisticated and technically capable financial plan. Now is no time for innumeracy. It’s the time for the best financial plan ever.
For more information, contact Ken Kaufman.