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To Combat Financial Strains, Hospitals and Health Systems Must Invest in Alternate Care Avenues

During the first half of 2022, hospitals and health systems faced operating and financial pressures due to a tight labor market and disruptions in the supply chain, all while patient volumes did not return to pre-pandemic norms. In a report issued by Fitch Ratings, hospital operating margins are expected to continue to weaken further in 2022 without the benefit of the Provider Relief Fund and other government stimulus funding.

So, what can be done to combat this? Hospitals are reporting that emergency room and inpatient volumes have not returned to pre-pandemic levels, while telehealth, urgent care, and primary care volumes have increased. As we enter the thirtieth month since the onset of the pandemic, these shifts should no longer be viewed as short-term responses, but rather long-term changes reflecting how healthcare consumers have changed their habits.

Individuals have now become comfortable and trust they can receive quality healthcare through telehealth, urgent care centers, and their primary care physician. Hospitals and health systems can no longer rely on the emergency rooms as the gateway into the hospital for additional services and inpatient stays. It is critical for hospitals and health systems to develop a strategy that responds to this shift.

As hospitals and health systems redesign their delivery of care, it is important that they take an approach that aligns their strategic position, estimated future market demand for services, and their operating and capital costs. This process will require investments and realignment of resources in new service lines, funded by reduction in costs in declining service lines. Since the pandemic has increased healthcare consumerism, hospitals and health systems will need to align their investments and costs from inpatient and emergency room services towards telehealth, primary care, and urgent care services in order to generate downstream revenues.

Below are some insights and considerations into these avenues of care:

Telehealth

At the beginning of the pandemic, providers were able to quickly increase the scale of their telehealth services. Thirty months into the pandemic, enough data is available to make informed decisions on the utilization of telehealth services. From the data, leaders should develop a telehealth strategy that maximizes quality and patient satisfaction, while providing efficient care. Factors that should be considered for investment include people, technology, and infrastructure to optimize the patient experience and to ensure access and reliability in usage. The strategy can also include a hybrid approach with in-person primary care while utilizing telehealth for specialists.

Urgent Care

Healthcare consumers have shown more trust in urgent care centers since the pandemic, which is due to convenience of locations and hours, ability to utilize technology to communicate wait times and availability, and less exposure to other individuals in a waiting room. The utilization of for-profit or unaffiliated urgent care centers is the biggest threat of revenue leakage. The large for-profit providers can utilize their scale to attract patients into their centers, then drive them to lab, diagnostic, pharmacy, and outpatient surgeries within their network. To directly compete with a for-profit urgent care without significant capital resources could be a zero-sum game. This is why it is important to analyze hospital and health systems’ strategic position and develop a strategy that maximizes differentiating factors. These factors can include your brand recognition in the community, quality of care, ability to operate in underserved areas, or personal service delivery.

Primary Care

Now more than ever, primary care physicians are the front door into the hospital and health system. An individual choosing an in-office visit versus the convenience of telehealth is most likely because they value face-to-face interactions when it comes to critical health concerns. First impressions will be vital and inspiration can be derived from the hospitality industry. Investments will need to be made in the facility to ensure a modernized, clean, and well-maintained facility that allows for efficient throughput of patients and medical staff. In addition, investments in people will need to be made to ensure those on the front line leave a positive impression. Lastly, investments should be made to improve the convenience and availability of ancillary services, such as laboratory or diagnostic testing, referrals and appointments with specialists, and interfacing with the pharmacy. Considerations need to be given to reducing barriers of performing the tests such as scheduling, availability and location, providing results, and ensuring prescriptions are ready and can be refilled easily.

Healthcare providers’ costs are increasing due to the results of the pandemic, labor and inflation, and the availability of resources to cover costs. When one service line receives increased investment, it does so at the detriment of another service line. The unfortunate reality is that this reallocation could result in reductions in headcount in service lines or departments that do not generate value to the health care system currently. That is why it is important that the leaders properly communicate the changes, receive buy-in, and have everyone from the organization working towards the same goal.

Over the next 12-24 months, leaders of hospitals and health systems are going to have some very difficult decisions to make related to the future of their organization and the communities they serve. There is the need for significant investments in plant, technology, and most importantly people. It is imperative those decisions are informed and well-thought out versus chaotic and under duress to maximize value for your stakeholders.

The Bonadio Group’s Healthcare team has years of advisory experience supporting hospitals and health systems. Please do not hesitate to reach outto our trusted experts to discuss your specific situation.

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.