A Note to Hospital and Health System CEOs and Boards

The Time to Seriously Reevaluate Your Organization’s Strategy is Now

Part 1 of a 4-part blog series

First of all, I wish to convey my appreciation to all of you for the amazing response to the coronavirus pandemic. I have always been proud of the important work we do as health care workers, leaders and board members, but I have been even more inspired by the courage, bravery, passion, and dedication to our patients and communities that our physicians and staff have demonstrated during this rapidly evolving and challenging time.

No doubt that your communities are very proud of your organizations and your people. During 2019, the national conversation about hospital prices, while a valid concern, nevertheless put the evaluation of hospital prices in the same category of free-standing imaging centers, free-standing ambulatory surgery centers, and physician-owned surgical hospitals that are, in many cases, little more than glorified ambulatory surgery centers. This was an unfair comparison, but it was also very difficult to communicate why. Very few good things have come out of this pandemic, but one of the good things is either the revelation or the reminder that community, regional and academic hospitals and medical centers are very different, and in fact, are critical to the care of our communities and our nation. During this crisis, it was not imaging centers, ambulatory surgery centers and physician-owned surgical hospitals that got us through this crisis and that are preparing for the “next wave,” but rather these community and regional full-service hospitals that provided emergency care, intensive care and saved countless lives of people infected with SARS-CoV-2 that developed severe illness. While the federal government lent some limited assistance to hospitals in a few hot spots of the country, the reality is that without our community, regional and academic hospitals, the deaths in our country would have been much more staggering than they already are.

Hospitals and health systems have suffered tremendous financial losses during the pandemic already, and as I have written previously, we are far from being through this. Some hospitals will not survive financially; some will survive but through a change in ownership. Nevertheless, we will eventually get through this, life will return to a new normal, and memories of the health care heroes will fade – not that we will ever forget, but just like 9/11, where we were justifiably proud of our first responders and there was justifiable national pride for some period of time, the pressures of daily life and new events and challenges will take over the headlines, and for many, the remembrance of all those who lost their lives and those who were the heroes responding to this crisis has become an annual event on the anniversary in September.

Next year, or whenever it is, the headlines will no longer be consumed by coronavirus (let’s hope!). But, we likely will have an economy hard hit by this pandemic, with small businesses and other companies perhaps still feeling the economic pressures from the fall-out, a focus on managing costs (which will revive the discussions about health care costs), and perhaps still high unemployment. In addition, state and local government budgets will be stressed (which will again bring focus to health care costs) and given what are sure to be tax revenue shortfalls, these governmental bodies will be making cuts to their budgets, including looking for health plan savings.

Additionally, by this time, we will have a presidential election and are likely to have one of the most important Supreme Court decisions ever to be issued – the fate of the Affordable Care Act. Both are of monumental importance to health care leaders and may profoundly impact your organizations. All of this needs to factor into your review of your strategy or renewed strategic planning.

Let’s just remind ourselves of what we are likely to see as we open back up our normal services under the current administration and with the ACA still in effect.

Record numbers of people have lost their jobs or were furloughed. Hopefully, many will be reemployed soon. However, we know that unemployment will be up, which will mean those who have lost their incomes and don’t have other sources are likely to join the ranks of our uninsured or Medicaid expansion populations (for those states that have expanded Medicaid). Some will qualify for advance premium tax credits and subsidies on the public exchanges that will enable them to remain insured. But, regardless of how this all shakes out, it is hard to imagine that we will not see:

• Increases in bad debt, especially for those who maintain their insurance with high deductibles and significant out-of-pocket expenses or those who lose their insurance and are not eligible for Medicaid (the gap population).
• Increases in charity care.
• A marked increase in Medicaid.
• A continued shift from commercial insurance to Medicare.
• A shift of commercial coverage with rather broad access networks to exchange plans with narrow networks, which may mean you are now out-of-network for some patients you previously cared for.
• Decreased revenues from ambulatory and outpatient services as people put off care or planned surgeries.
• Decreases in revenues as some patients continue to fear coming to the hospital.
• Patients presenting with more advanced disease as they put off screenings and preventive care (this will increase the number of patients for which the revenues do not cover the costs of providing the care)
• Patients may present sicker because of deferring coming to the emergency room due to their fears of contracting coronavirus, which will make their care more costly and less likely to be covered by DRG payments or other reimbursements.
• Decreased operating margins, which will in turn decrease our capital spending on facility renovations, new facilities, new technology and new services.
• Decrease in days cash on hand due to the decrease in revenues and increased costs managing through this pandemic.
• Downgrades of bond ratings by rating agencies based on the deteriorated financial performance and metrics, which will increase borrowing costs.

Not a rosy picture, right? It gets worse. Let’s now imagine that Republicans maintain control of the White House and Senate and the Supreme Court strikes down the ACA.

I have not seen the Republican replacement health care plan – or maybe I have, which would be more alarming. Maybe the plan is the bits and pieces we have already seen – association health plans, short-term “skinny” health plans, religious ministry cost share programs and block grants to states for Medicaid.

With striking down the ACA, the public exchanges, advance premium tax credits, subsidies and Medicaid expansion all go away.

So, let’s see how this combination of events would cause me to revise the list of impacts above. Here is the revised list:

• Significant Increases increases in bad debt, especially for those who maintain their insurance with high deductibles and significant out-of-pocket expenses and those who develop conditions that are excluded form coverage under their new policies, and from or those who lose their insurance and are will almost certainly not be eligible for Medicaid (the gap population) and for whom there is no option of a subsidized exchange plan. Bad debt will also increase due to failure of association health plans or religious ministry cost sharing plans to cover the service after it was provided or as a consequence of their insolvency given their lack of state department of insurance oversight.
• SignificantIncreases increases in charity care.
• A marked Some increase in Medicaid.
• A continued shift from commercial insurance to Medicare.
• A shift of commercial coverage with rather broad access networks to exchange plans with narrow networks, which may mean you are now out-of-network for some patients you previously cared for.
• Decreased revenues from ambulatory and outpatient services as people put off care or planned surgeries.
• Decreases in revenues as some patients continue to fear coming to the hospital.
• Patients presenting with more advanced disease as they put off screenings and preventive care (this will increase the number of patients for which the revenues do not cover the costs of providing the care) due both to fears of coronavirus, but also the fact that preventive care and screenings will no longer be covered services and will no longer be provided without out-of-pocket expense.
• Patients may present sicker because of deferring coming to the emergency room due to their fears of contracting coronavirus or limited insurance coverage, which will make their care more costly and the costs less likely to be covered by DRG payments or other reimbursements.
• Decreased operating margins, which will in turn decrease our capital spending on facility renovations, new facilities, new technology and new services.
• Decrease in days cash on hand due to the decrease in revenues and increased costs managing through this pandemic.
• Downgrades of bond ratings by rating agencies based on the deteriorated financial performance and metrics, which will increase borrowing costs.

I have written previously about what I think the outcome of the legal challenge to the ACA should be (uphold the lower court’s determination that the individual mandate is unconstitutional, but preserve the remainder of the statute and merely sever the individual mandate from the statute). But, predicting the outcome with the change in the make-up of the Court since the last time it considered the constitutionality of the ACA has become much more difficult.

All of this must be taken into account for your review of your current strategic plan or for your new strategic plan. But, there is much more to be considered. I will address additional concerns and issues in Part 2 of this blog series.