A Note to Hospital and Health System CEOs and Boards

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

Part II

In Part I of this series, I encouraged health care leaders and their boards to reevaluate their strategic plans in light of the impact of the pandemic as well as the changes in health care that we likely will face with the new normal. In Part II, let’s continue the exploration of what some of these new pressures will be.

As hospital leaders, facing the tremendous financial pressures that you have experienced with loss of revenues and services, you are likely focusing on increasing your revenues by restarting services, as well as cutting expenses since those lost revenues will take quite some time to recover. Guess what? Almost every company and individual you serve will be doing the same thing. While there are exceptions, most companies experienced a significant loss of revenue and will only slowly be able to regain their business. Individuals, too, have lost work and income and likely have incurred more debt. For those who regain work, their hours may be limited, their commissions may be a lot less, and they, too, are likely looking for cuts to their household expenses. It is not likely that most had met their deductible before the coronavirus shut things down. Meeting their deductible now may be a significant deterrent to them seeking any “elective” services anytime soon.

Given the financial realities we are facing, I would suggest that unlike the past, we cannot “make it up on volume.” We have to think differently. Companies and governments will all be looking for cost reductions and health care costs will be a line item with a target on its back. I would also caution health care organizations to no longer think of ourselves as immune from market forces. I would challenge you to think of one industry or one company that has been successful in the long-term by ignoring consumer’s complaints that their product or service is too expensive for substantial numbers of their customers.

I want to suggest that things are different. I want to point out that disruption was coming to health care and I want to make the argument that coronavirus will only accelerate that disruption. Let me explain.

First of all, let me remind you that disruption was already underway before the coronavirus outbreak. You likely haven’t considered that free standing imaging centers, ambulatory surgery centers, free-standing cardiac cath labs and physician-owned surgical hospitals have largely come about and expanded over the last three to four decades. Even more recent was the development of so-called “micro-hospitals.” Also, more recent, the development of telemedicine and telehealth services. Even more recently, mobile health care services to provide primary care or urgent care to people in their homes and also very recent, the design of hospital-at-home services. We can all think of additional examples of disrupters looking to break into the $3T health care industry to get their bite at this, but making services more convenient, more affordable, and a better experience.

Okay, so no one is surprised by this. What is my point? My point is that coronavirus has just handed them a big helping hand. First of all, patients are already saying that they are going to put off all of those services that make hospitals money under fee for service. Surveys indicate that some will put those services off 3 months, some 6 months and some a year. Oh, and what do you think happens if we do have another bigger, deadlier second wave this fall? You would be foolish to think that patients are not going to consider the appeal of these non-hospital settings to receive care as opposed to hospitals where they take care of patients with COVID, even though their concerns may be unfounded.

Second, given at least an economic recession and possibly a depression, the financial pressures on people and the companies or local governments they work for are going to be immense. The appeal of benefit design to drive employees to lower cost settings will be significant.

Further, coronavirus did a lot to force some people to try out telehealth services who before would not have considered them or preferred an in-office visit. From the surveys I have seen, it appears that many who tried it liked it and may enjoy the convenience of it in the future. If hospitals and health systems don’t make this offering available, there are plenty of telehealth companies who will step in to provide it.

Now, I’ll explore this more in Part III, but let’s consider this. The bond market and the stock market are likely not going to be great investment vehicles for the short-term. There will be a lot of private equity and venture capital looking for places to safely and profitably invest their money. It would be a serious misstep for us not to assume a lot of it will go into health care. This, coupled with physicians who have had their businesses turned upside down, probably for the first time in their careers, will be willing partners to create new opportunities for financial returns that can take advantage of the new market realities.

It is not my intention to only identify the problems facing health systems. I will talk about solutions, but first, it is important to finish exploring these challenges because change is hard, and few are willing to make sufficient changes until forced to do so. I want to make the case that while people naturally tend to believe making changes are risky; I want to make the argument that not making change is riskier.

In Part III, let’s discuss physician challenges and opportunities.