As leader of the Healthcare Financial Management Association, Joe Fifer has been keeping close tabs on how the COVID-19 pandemic has been affecting the financial health of hospitals and health systems. Joe took a few minutes to share what he’s heard and his thoughts about short-term and long-term effects. This interview was conducted March 23, 2020.
Q: How are hospital monitoring the immediate financial effects of the COVID-19 crisis?
A: The financial managers and executives have been all over the modeling of this crisis. It’s a period of significant uncertainty, of course. But finance professionals are using the data and models available to anticipate different scenarios for the surge—the possible number of cases and the timing—and modeling potential financial implications from there.
Some comments I’ve heard are that elective procedures will continue to be very slow through the end of June. The impact of revenues and margin is huge. I talked to one CFO in a system of about $6 billion in revenue; that system is looking at a $350 million margin impact. We have never seen anything like this. Ever.
Q: What might be the future financial impact of the current crisis?
A: Organizations that have 200-300 or more days cash on hand will have a tough period, but will weather the storm. My concern is the effect on places that don’t have sufficient cash reserves and liquidity. Hospitals will need to lean on the state and federal governments for support, but it’s going to be a tough go.
Q: What about the potential for hospitals under financial stress to be out of compliance with debt covenants?
A: Banks will need to be flexible. They don’t want to write these loans off; they don’t want to force someone into bankruptcy. If this crisis triggers hospitals to be in noncompliance with covenants, the banks would want to know the whole story, but I believe they also would restructure or renegotiate or defer the application of those covenants.
Q: It’s budget season for many hospitals. Are you hearing how the crisis is affecting that process?
A: Among the finance professionals I’ve talked with, the entire focus has been on trying to figure out what this situation will look like over the next few months. Their organizations are completely focused on creating capacity, deferring elective procedures, gearing up in supplies, capabilities, and staffing for surges that they expect. I have not heard the word “budget” once in the last week.
Q: What about supplies?
A: Everyone is scrambling. I’ve heard stories of manufacturers shifting to making masks and chemical companies shifting to crank our antibacterial hand cleanser. In one way the stories I hear are consistent. Everyone has shortages. But in another way, the stories are not consistent: one place is worried about masks, another place is worried about gowns, another place is worried about ventilators. And that highlights the inconsistency of the healthcare supply chain.
COVID-19 test kits are another problem. Larger health systems are developing their own test kits and getting results in several hours rather than several days. However, test availability is still a big problem for physician practices and for small independent hospitals without robust lab functions.
Q: What could the new normal look like once we’re through the worst of this?
A: I am very concerned about the long-term implications for the financial health of our industry—particularly small, rural, and safety net providers. They are already under great stress. The last thing they need is additional financial pressure.
From a payment policy perspective, the outlook is a little more encouraging. I’m hoping that this situation will take the shackles off of telehealth, and that we create some payment policies that stick for the long haul to enable that technology to be used more prominently.
Q: Have you seen any other positives in this situation?
A: On the lighter side, many of us have been getting to know our colleagues’ children and pets when we hear them in the background on conference calls.
It’s hard to see positives right now when everyone is just scrambling to protect against the surge. However, I am heartened to hear from everyone I’ve talked to that this situation has brought together multiple disciplines in a unified effort. The CFOs I’ve talked to are right in the heart of the conversations that are going on in their health systems. They’re very articulate about what’s going on clinically, which I think is absolutely necessary. They’re trying to sort this crisis out with their peers and colleagues, and that’s a good thing, because that’s the reality of what we’re dealing with. This challenge is coming at us from many directions, and we need everyone’s expertise to succeed.