2023 forecast: 7 immediate and long-term priorities for hospital leaders
Jan 26, 2023, 12:03 PM
The COVID-19 pandemic and steady shifts in U.S. demographics have created a hurricane of headwinds including—but certainly not limited to—workforce shortages, rising expenses, inflation, capacity constraints and hard-to-predict spikes in demand.
All the while, many of the nation’s hospitals have consistently been operating in the red and will likely need to limit services or shut down entirely according to recent industry reports and warnings from hospital group leaders.
“I'm glad I'm not in one of those positions. It is incredibly tough to be a hospital CEO right now,” David Kim, a partner at Moss Adams who consults on healthcare strategy and operations, told Fierce Healthcare. “We’re hearing pretty similar, consistent issues across the country from clients [and] potential clients. When we go to speak at conferences, it’s all pretty bleak.”
Hospitals and health systems with their backs to the wall will be forced to address their immediate financial challenges, but hospital finance experts say leaders must also save some of their energy for longitudinal threats to their organization and healthcare at large.
“This is like changing a tire on a race car going around the track; near-term versus long-term [while] things are moving very fast,” Lisa Goldstein, senior vice president at Kaufman Hall and formerly an associate managing director at Moody’s Investors Service, said. “There’s no way for me to say, you know, 50% of a leader’s time should be on the near-term problems and 50% should be on long-term. But … you cannot be so ingrained in the day-to-day that you lose sight of the longer-term view, because if you don’t, someone else will.”
With no shortage of hurdles in store for 2023, experts offered seven quick wins and big-picture priorities they believe hospital executive teams should have in mind going into the new year.
In the short term…
Crackdown on premium pay utilization
Before organizations begin looking into training or recruitment investments to avoid relying on contract labor, Kim said that many hospitals can make major progress on their balance sheets by focusing on fundamental cost management issues that preceded the pandemic, such as premium pay utilization.
“Overtime, double-time, triple-time, paying for missed meal breaks, on-call callback pay—when times were good hospitals didn’t really deal with it and now it’s become kind of the cost of running a business,” Kim said. "Most of the places we work with, even before the pandemic, are running well over 5%, and 5% is probably the threshold that you don’t want to go beyond. Now we’re seeing some clients [can] push down to 3%, 2.5% utilization of premium.”
One main offender that can be quickly addressed is end-of-shift overtime. The key, Kim said, is not to be punitive but to be transparent with managers and employees on why it’s important to clock out on time.
Encouraging accountability, increasing the frequency of reporting structures and publishing progress along the way helps employees understand the impact unnecessary overtime has on a hospital’s financial health and change their behaviors accordingly.
“It's a little bit hard sometimes when employers are used to getting overtime and that becomes the norm, but I think that's something that hospitals are finding more and more that they can't afford,” Kim said. “This is one area that [hospitals] can absolutely control and manage and get some financial benefits very, very quickly, without investing in expensive technology or resources.”
Strengthen decision control processes for resource requests
Temporary hiring freezes have become commonplace as struggling hospitals and health systems aim to limit any new expenses. While useful when implemented correctly, Kim warned that many departments can be too quick to bend the rules when it’s convenient.
“It’s really not a hiring freeze because a lot of the position requests eventually get approved,” he said. “If you’re in a serious financial position … and you’re requesting positions, it’s got to be at a very, very rigorous level of review before anything gets approved. There’s got to be a much higher bar to bring in new folks, especially if they’re not nursing-related folks.”
Most hospitals already have formal decision control processes in place but “never do a great job of executing” when it comes to position control, Kim said.
Managers will always characterize their requests as “absolutely critical” to their team’s success, he said, meaning that it’s up to hospitals to tighten the screws on request reviews and truly limit approvals to “mission-critical” resources.
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That same mindset should also extend to nonhuman resources, especially in light of supply chain disruptions. Larger organizations in particular can leverage their scale to limit or standardize supplies, though Kim acknowledged that some of those decisions can take time to finalize.
“Anything that involves, you know, physician preference items [such as] OR packs they like to use, you’ve got to engage the physicians and that’ll take a little bit of time. But definitely, non-labor should be the priority for cost savings.”
Start preparing for redetermination
The post-COVID redetermination of Medicaid enrollee eligibility was initially expected to kick off with the end of the Public Health Emergency (PHE). However, Congress handed the industry a curveball with its end-of-year omnibus that, among other things, will allow states to start the process regardless of whether the PHE is still in effect.
According to a recent estimate from the Urban Institute, that lengthy process could eventually see 18 million people drop off Medicaid and about 3.8 million of those ultimately becoming uninsured.
“We anticipate that the end of the PHE will cause the biggest changes in coverage since implementation of the Affordable Care Act more than a decade ago,” said Katherine Hempstead, senior policy adviser for the Robert Wood Johnson Foundation, which supported the Urban Institute’s study.
The eventual impact of redetermination will change from state to state and likely play out over several months, Goldstein said.
This means it’s up to hospitals to investigate the local repercussions of redetermination: what portion of the community could likely lose coverage, how volumes may be impacted, whether they’ll see a substantial rise in bad debt and if intake counselors will need more training to support confused patients.
“Are [hospitals] ready for lots of people, millions of people across the country estimated [to] lose their Medicaid coverage?” she asked.
Though big-ticket items like redetermination and telehealth waiver extensions have have a clearer timeline, several other programs and temporary regulations are still tied to the PHE and deserve hospitals' attention. From payer-backed booster shots to COVID-19 relief funds, “there’s a lot that will happen when the PHE is lifted and my thinking is it’s going to be in 2023,” Goldstein said. “That’s got to consume some leadership resources to get ready for.”
Flatten management structures
Tough times are best weathered by nimble organizations. Sometimes that means taking a few cooks out of the kitchen.
“I came from a couple of organizations that were highly consensus driven—it took forever to make decisions,” Kim said. “You can’t afford to take a year to make decisions. You need quick pivots.”
Trimming down span of control and reducing organizational layers can help improve a hospital’s efficiency and speed from top to bottom.
Revised management structures also are another source of cost savings, a point often cited by health systems large and small alike as they laid off administrative staff and announced "leaner" divisional reorganizations in 2022.
“You have to do it right, but that’s another area of immediate opportunity for hospitals,” Kim said.
In the long term…
Be willing to make tough choices
COVID-19 came with several harsh lessons for hospitals, chief among which is that some facilities can only do so much.
“There is a new fiscal reality that we’re going to be in [during] 2023, 2024 with labor, unpredictable volumes and just higher cost of services,” Goldstein said. “Be ready to sit down with your board and your leaders, your executive team, etc., to really examine all the services provided, to make decisions and maybe not provide everything that you’ve been providing. Very difficult conversations, but they need to be very urgent conversations right now given the fiscal reality.”
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The past year has been replete with healthcare organizations cutting off a limb to save the body. Hospital leaders frequently mourned the closure of low-volume service lines and their community’s reduced access to delivery wards, pediatric specialists or other health needs amid calls for increased financial aid.
With little relief on the horizon, Goldstein warned that these scenarios are likely to persist past 2023 and advised hospital and health system leaders to adjust their frame of mind in order to best serve their communities.
“A new urgency has come out of the global pandemic,” she said. “We're all in it for the mission, but there's got to be a financial infrastructure. That's got to be more solid than ever to fund the mission, and that requires urgency of decision.”
Maintain and build liquidity
Liquidity proved a major priority for nonprofit hospitals throughout the pandemic. “More than just a cushion,” Goldstein said that cash on hand suddenly became a very practical measure of how long hospitals could keep running when faced with the unexpected.
“We saw that during March and April 2020,” she said. “Revenues weren’t completely shut down, but it was a trickle and days cash on hand became very important as the ability to manage through six, eight or 10 weeks of shutdown—and some hospital systems since then have voluntarily shut down when the surges are so high. Good management gets you through rough times like that, as does a good balance sheet.”
Many nonprofit hospitals—which unlike for-profit hospitals cannot trade equity for an immediate cash infusion—now find themselves at a low point of liquidity, placing them at risk in case of another unexpected emergency. It also leaves these hospitals less capable of investing capital in their operations or service lines, which Goldstein noted can become a competitive liability in an industry as cutting-edge as healthcare.
However, Goldstein said the best path to strong liquidity is different for every organization, especially as interest rates continue to climb. Whether it be through cash flow, investments in the equity markets, borrowing or an emergency line of credit, she said healthcare leaders can’t afford to move forward without a plan to rebuild their war chest.
Keep targeting efficient growth or get left behind
Cost-cutting and defensive decision-making will only take an organization so far, McKinsey & Company Senior Partner Drew Ungerman warned.
“Now is not the moment to slow down,” Ungerman, who heads the firm’s North American healthcare systems and services practice, told Fierce Healthcare in an email.
“Historically, the organizations with the most success through downturns have doubled down on efficiency by prioritizing initiatives to make step changes in productivity and have continued to pursue a disciplined approach to growth (rather than retrenching to weather the storm). While the challenges the industry faces right now are significant (and perhaps once in a generation), we believe that those who are willing to take sustained and decisive action are most likely to safely weather this storm,” he said.
Kim echoed the value of expansion and encouraged hospitals to consider how their existing systems could be leveraged to drive efficient growth.
Service line optimization, for instance, has become a go-to focus for his firm and its clients. Though reviewing the performances of specific service lines can lead to cutbacks, it’s also an opportunity to understand how an organization can efficiently capture more of its surrounding markets and ensure long-term sustainability.
“The best way to improve your productivity efficiency is actually to grow,” Kim said. “That takes a lot of effort around really analyzing in detail specific service lines, whether it’s neuro, cancer, ortho, heart and vascular. Where do you want to invest? Where do you want to grow? Where are you losing patients in terms of geographies or competitors? How are your physician referral patterns looking? All of those things are going to be super important for hospitals.”
Ungerman and Goldstein also encouraged hospitals to keep abreast of novel trends or competitive strategies already starting to take root.
The former encouraged hospital leaders to double down on care delivery transformation, technology enablement, administrative streamlining and caregiver support tools to improve their organization’s productivity in the coming years.
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“This will require sustained effort, and healthcare organizations will need to mobilize with the same conviction as during the pandemic, but without the same urgent prompt,” Ungerman said.
Goldstein noted that everything happening either before or after a patient’s hospital stay “is in the crosshairs of competition.” Hospitals and health systems will need to keep an eye on, if not embrace, the continued push toward ambulatory care, cross-industry partnerships and hospital-at-home programs, if they don’t want to be left behind.
She also added that her firm has seen an acceleration in the decades-long shift from private physicians to those fully employed by hospitals as medical staff. That trend is likely to continue, she said, and could give organizations a leg up in future clashes for clinical talent if they can stomach the increased costs.
“It's expensive, obviously, but it may improve productivity,” she said. “Financially linking positions to an organization [could] be of greater importance in very competitive healthcare markets to have your physician loyalty financially embedded in the organization.
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