More from Ken
The more we learn about the revenue shock that hospitals are experiencing from COVID-19, the clearer it becomes that recovering from that shock will require a rethinking of hospital operations.
The numbers are not pretty. In April, with a full month of COVID patients and shutdown of non-urgent services, hospitals’ outpatient revenue fell 49%, inpatient revenue dropped 25%, and operating EBITDA margins fell 174%.How quickly revenue will come back is anyone’s guess. Anecdotally, we have seen surgical cases coming back quickly in some facilities, but continued major gaps in ED visits and in-person clinic visits. And COVID cases continue to increase in some markets, including spikes where stay-at-home orders are being lifted.
This is not the kind of shock that organizations can solve by staying the course. Even under the best scenarios, hospitals are facing unprecedented losses, with just guesses that business will return to pre-COVID levels within the next 12 months.
As we look out at the available information, it seems that over next 90 days or so hospitals will likely need to make major changes to operations in order to adjust to a loss of revenue whose exact level remains unknown.
To meet these fast-arriving cost and revenue challenges, hospitals will need to start with informed answers to fundamental questions.
First, we all need to be very clear about what high performance looks like. What are the core functions that must remain? What are the desired outcomes of those functions? What are the most effective structures within which to achieve those outcomes? What are the most efficient processes to carry out the functions? What is the optimal workforce for a new level of work? What technology support is needed? What facility arrangement is ideal?
Next, hospitals will need to honestly identify performance challenges. Where does the current structure create bottlenecks? Where are efforts duplicated? Where does communication break down? Which processes are problem-prone or poorly understood? Where are desired outcomes routinely not achieved? Which processes do not add value? Which functions are performed in multiple sites with varying levels of quality? Would these functions ideally be consolidated?
In addition, hospitals need to identify the lessons they have learned from COVID about operations. What changes did the organization make that brought positive results? Were certain functions paused that turned out not to add value? Did having staff work remotely reveal potential efficiencies? Could the organization reconfigure facilities for greater safety, better patient experience, and lower capital and operating costs? Will a shift in consumer demand require a realignment of administrative and clinical services?
Even tougher than answering these questions will be taking action based on the answers. However, basic math provides the impetus.
Executives I have spoken to, even at organizations expecting a strong return of patients, anticipate a long-term reduction in revenue. Assuming that revenues return to 95% of what they were previously, costs would need to be reduced by far more and far more quickly than traditional targets. And if revenues return to only 90% of previous levels, then the cost challenges escalate dramatically.
None of this is going to be fun. But we all just discovered how important our hospitals are to America’s public health in the worst of circumstances. The COVID future remains uncertain. And importantly, many non-COVID patients need care as soon as possible. It is therefore critical that America’s hospitals return to their fighting weight as immediately as can be managed.