Michael K. Lauf
G. Mark O’Bryant
Although hospital volumes are beginning to return after the devastation of the COVID-19 pandemic, the financial effects of 2020 continue. During 2021, American hospitals could lose between $53 and $122 billion due to the pandemic, according to a recent Kaufman Hall report. In the first two months of 2021, inpatient discharges, operating room minutes, and emergency department visits were down year-over-year between 13% and 26%, and expenses were up 24%.
The damage from COVID-19 and post-pandemic strategies vary considerably by hospital location, size, market, and pre-pandemic strength. In this roundtable, Kaufman Hall discusses the post-pandemic outlook with CEOs of two health systems that share three characteristics: sound balance sheets, relative geographic isolation, and operating revenue of near $1 billion.
G. Mark O’Bryant is President and CEO of Tallahassee Memorial HealthCare, and Michael K. Lauf is President and CEO of Cape Cod Healthcare. Tallahassee Memorial HealthCare (TMH) is an 800-bed regional safety net system in northern Florida that serves a population of more than 1 million. Cape Cod Healthcare is a community-based health system in Southeast Massachusetts that serves a population of about 220,000 to 700,000, depending on the season.
Kaufman Hall: How did COVID-19 affect your organization’s performance in 2020?
G. Mark O’Bryant: Like most organizations, we saw a significant decrease in volumes and revenues. With the intent to preserve our relationship with our workforce, we did not go through any layoffs. We implemented limited furloughing and took pay reductions at the leadership level, but we still experienced pretty significant losses early on. We received some [Coronavirus, Aid, Relief, and Economic Security (CARES) Act] funding. It wasn’t nearly enough to cover the drop in revenues and the losses we experienced, but it was helpful. Fortunately, we have a strong balance sheet, which helped us manage through that time.
During the pandemic, we took a hard look at assessing what services were most important. We didn’t eliminate any of our social-good services, but we looked at things that might’ve been duplicative in the community, and at changes in markets, technologies, or in how people engage in services. If we found there was an opportunity to partner with somebody else or to move a service to a different organization, we explored that.
For example, we operated an adult daycare center that had been part of our organization for decades. We also have a very strong elder care service in our community that provides a great service and is a great partner to our organization. We both closed our adult day care centers early on during the pandemic. When we looked at bringing that back up, we talked to them, and they had capacity. Elder care is their core mission, whereas it’s a peripheral service for us. We recognized that both organizations and the community would be better served if we consolidated those into one organization.
While it wasn’t without struggle, over time we’ve been able to bring our bottom line back intact. However, we did experience losses for a relatively significant part of our fiscal year. We’re not used to that, but we have brought the organization back to running in the black. Our return to a positive margin has given us some freedom to do some things that we feel are critically important. We typically give increases at the beginning of our fiscal year on October 1. While we held off on those in October 2020, we committed to the organization that we would institute the raises if we could get back to running in the black. We provided 3% across-the-board raises in February 2021, and that was well-received, especially considering the workforce pressures we all are experiencing.
Michael K. Lauf: COVID-19 made us all learn on the fly. Our inability to test on the front end—because we lacked permission and testing supplies—led to fear and uncertainty that took a long time to get over. COVID made everything that we did more expensive. We sometimes paid 2-4 times what we normally would for supplies. Obviously, the pandemic had a psychological toll on our staff. We converted rooms to negative pressure environments, and acquired ventilators. We also had to get people to trust us again, because there was this general feeling in the community that hospitals weren’t safe—and that if you went there, you would get infected.
We also helped educate our community about COVID-19 and set up testing facilities. In the beginning, the government didn’t set up statewide testing sites on the Cape, so we spent an inordinate amount of money setting up testing sites and acquiring testing technology to keep it in-house.
Then we had staffing shortages. The bottom dropped out because we weren’t permitted to do surgeries or outpatient work. We ended up losing $140 million in revenue last year. The government made up 30-33% of that, but that’s still a large bolus of net revenue to overcome, and people haven’t come back [to our facilities] the way we hoped. Urgent care suffered, and the emergency department (ED) saw an increase in patient acuity and behavioral health boarding while more traditional volumes were depressed. We’ve done well in inpatient care, but we’re really dependent on outpatient services because of our payer mix, and those patient volumes have not returned to pre-pandemic levels.
Kaufman Hall: What is your outlook for return of volumes, including inpatient, outpatient, and in the emergency department?
O’Bryant: The inpatient side has been pretty steady. On admissions and patient days, we’re running month-over-month about 7-8% below what we normally do. At first, we saw a significant decline in inpatient activity and procedures. We saw a steady return over time on the inpatient side, to where we were pretty much plateaued in the mid- to late-summer. Since then, it has been fairly consistent. We have seen little blips, typically when there are upticks in COVID driving up our census.
On the surgical side, we have moved our numbers back to almost where we were before. In the ED, we saw significant declines in the beginning. ED volumes have not returned to where we were, and I’m not sure we ever will get back. That may not be a bad thing, because in general there’s been a high reliance on EDs as people’s reflexive place to go for healthcare events. EDs have probably been overutilized, and substituted for general practice or urgent care levels of activity.
Through this process we’ve been able to redirect people, whether through telemedicine or just moving them to what they perceive to be a less risky environment. If we’ve been able to move them to a more appropriate level of care, that is a positive thing. So I’m not sure ED volumes ever will go back to where they were, at least on a case mix or a percent-of-population level.
I’m not sure ED volumes ever will go back to where they were.
Early on, our community experienced an increase in the number of people dying in their homes because of avoidance of care. We sponsored a fair amount of activities and communication campaigns to say: “If you’re sick, come to the ED.” We’re not trying to get people into EDs who don’t need to be there, but if you’re sick, don’t delay. With that—and with people’s general evolution in understanding how to manage in a COVID environment—we’ve seen those emergent patients come back. We’re still seeing less volume in the EDs, but we’re seeing those high acuity cases return to the ED at the levels they were before.
Lauf: Cape Cod Healthcare is really bullish on the surgical market and the inpatient market. You’re going to see volumes bounce back, but even with the vaccine, it’s going to take 1-2 years for volumes to come back to pre-pandemic levels.
Some things don’t need to come back. There are some ED visits that weren’t needed. Will telemedicine save the day? No. Will it help bridge this time in our history? Yes. Is it necessary and should it stay? Absolutely. But at the end of the day, healthcare is still a people business. Telehealth is perfect for hard-to-fill specialties and routine checkups. Longer term, you need to facilitate access. For the next two years, you’ll see volumes down up to 10% in the ambulatory arena, in the EDs, and in urgent care.
Kaufman Hall: What are the keys to keeping your organization resilient in the post-COVID world? For example, are you looking at cost structure any differently moving forward?
O’Bryant: We’re currently performing a review of our cost structure and looking at how we organize. We’re evaluating whether there are ways we can take layers out, or if we can create partnerships to build efficiencies across organizations in the community. We’ve taken a much stronger review of how we perform services and what are the appropriate standards—not just related to care, but as it relates to resource allocation tied to that care. Before the pandemic, we were a bit looser, and now we’re developing stronger, more disciplined models around performance evaluation.
Lauf: During the initial stages of the pandemic, we carried every single employee for eight full weeks without charging any vacation time or hitting any accruals. We knew our incredible employees would be needed to care for our community. However, ultimately, we were forced to do furloughs and layoffs last May when we saw that the business wasn’t coming back. But when you lose $137 million in net revenue, something had to give, so we implemented a $40 million expense reduction plan. We focused hard on protocols and pathways. We challenged our teams to refine processes and made many improvements. The entire management team took pay cuts. When you couple that with what we got from the federal government, we were able to have positive cash flow last year. This year, we’re struggling financially again. The revenue simply hasn’t bounced back. With the expenses, we’re not able to be as nimble as we once were. We’ve analyzed every single contract and we continue to shake the supply chain.
Ultimately, you have to understand your cost per unit of service. We have to refine our workflows, and leverage technology. We have to better utilize our electronic medical record (EMR), which we installed in November 2020. We’re seeing some revenue depression as we learn how to utilize the EMR. Long term, it’s going to help us both quantify and qualify what we’re doing. The ability to share that information and improve patient outcomes is a great tool for us. We will come out of this pandemic, and our health system will recover enough to avoid further disruption.
Kaufman Hall: What about strategic repositioning? Has anything changed in your market as a result of COVID in terms of your growth, partnerships, and your competitive strategy?
O’Bryant: Before COVID-19, we were working on a number of initiatives, partnerships, and new care models in the community, which were shut down in the first seven months of the pandemic. Now they’ve come out of it with a renewed energy, so we have a number of strategic partnerships that are moving pretty rapidly.
People see the need and the value of working together. Our community has learned how to partner better through COVID, and that we accomplish more working together. For example, Florida State University (FSU) has a strong research program and an established medical school. On the testing side—especially with Polymerase Chain Reaction (PCR) testing—it was very difficult to get enough kits to do high levels of testing early on, and we were highly dependent on outside labs.
Our community has learned how to partner better through COVID, and that we accomplish more working together.
FSU’s research department came to us with the idea of creating our own testing platform. We developed an approach where we weren’t dependent on vendor kits, and we created a PCR approach that is more accurate than the standard tests in the market. We added additional capacity and thousands of tests per day for the benefit of our community, and it wasn’t just for us at TMH and FSU. We made that available to many organizations across the community.
If you look at how we’ve managed COVID here, our numbers are pretty remarkable. Not discounting the personal tragedies people have experienced, our COVID mortality rate is very low compared to most other communities in the state and in the country. This success is a result of strong medical leadership and an active series of partnerships with our broader community. As an example, we now have created permanent, joint research positions and strategic partnerships with FSU moving forward.
When we look at partnerships, we ask: How do they differentiate you? Can you strengthen the level of service that you’re providing? Can you improve your quality, and use quality as a differentiator? Can you improve your breadth of services? Are there ways we can create alignment, where we can bring new services to the community? With FSU, the interest is around expanding the education platform, but also bringing research as a stronger resource for the community.
Lauf: We are exploring growth opportunities. I don’t know that you ever could do an expense plan without doing a revenue plan. We will launch our designated trauma program this year, which will mean upwards of 500 additional surgical procedures. It will really enhance the care that we provide in our community. We’ll continue to look for ways to expand to new markets with primary care and specialty care in areas where we’ve routinely underperformed. We’ve been able to enhance our neurological and orthopedic divisions, and we’re in the process of enhancing our cardiology and oncology divisions.
We’re also looking to really grow in areas that meet the demographics of our community. So while we truly are an independent health system, we are selectively partnering with others to enhance the offerings that we have in our community, as well as organically enhancing what we’re doing by the recruitment of physicians and the introduction of new services.
Partnerships have to be a win-win. They never work when one side feels better than the other. So what we really look for is, will it enhance the presence that we have in our own market? Will partnering with somebody else enhance what we do from a branding perspective or from a clinical perspective? If so, then we’re willing to look at it.
Partnerships have to be a win-win. They never work when one side feels better than the other.
Frankly, the time to make strategic investments is now. We’ve spent a decade getting strong. Because of that, we were able to deal with this pandemic without shaking our balance sheet or our commitment to the institution/community. We made some aggressive decisions during the pandemic that paid off.
We’re going to have to do more post-pandemic to invest in additional service line enhancements. It’s the perfect time to make bold investments while the system is so vulnerable, because we can go and win back additional market share and enhance our own presence in our community.
Kaufman Hall: What are the keys to being an effective leader in a time of such uncertainty?
O’Bryant: One of the things we’ve learned is that communication is critical in any organization, and timely communication is hard but essential. The executive leadership team started doing daily COVID huddles. We used them as a vehicle to make sure that everybody was on the same page and that we made crucial changes rapidly and effectively. We found that the level of communication really jumped up around COVID. But we also noticed that other things were being addressed in these huddles that weren’t specific to COVID. As an organization, we were able to react to issues much more quickly and bring greater consensus.
After a while, we realized that this was not just a tool for COVID, but to improve our ability to move as an organization, to communicate, and to make changes and improvements. So we instituted an organization-wide huddle program. We have department huddles and leadership huddles, and we move information up and down every single day. That allows us to be more nimble and to engage a larger number of people. It’s been very helpful in driving a positive culture change across the organization.
Through this whole process, I think we’ve developed much stronger tools for communicating with colleagues across the entire organization. As painful as this may have been, a lot of healthcare systems—including us—will be stronger coming out of this than we were going in.
Lauf: Humility and nimbleness are key to leading in times of uncertainty. I learned a lot this past year, and I learned some lessons the hard way. Every day this virus humbled every one of us. I think about the people on the front lines who did incredible work, and the people behind the scenes of that incredible work—the people that did it every day, regardless of what it could mean for their own health.
We chose this field to help save people’s lives, and the humility comes from knowing we could have done better, but also knowing that we did really well. We’ve got to learn from the mistakes. As for the nimbleness, it was exciting to bring back that entrepreneurial spirit of figuring out: How do you out-think an invisible virus? And how do you maintain your business model so you can stay open for your community as its safety net?
It’s my responsibility to help people get through this time, and make sure that we’re well positioned for the future as well.
In our industry, there is a lot of attention on burnout—physician burnout and staff burnout. One of the things we need to focus on as healthcare leaders is that vision that things are going to be a lot better. That’s what motivates me each and every day. It’s my responsibility to help people get through this time, and make sure that we’re well positioned for the future as well.