By Kermit S. Randa
More than one year into the pandemic, healthcare organizations’ expenses have continued to climb and revenues have not yet recovered from 2020 lows.
While building agility for the road ahead is top of mind for healthcare leaders, increasing care costs, mounting pressures to improve profitability, and declining volumes across emergency departments, operating rooms and other areas present major challenges that finance teams must address to pave the road ahead.
While improving performance with the help of CARES aid and expanding access to vaccinations offer some hope for recovery, organizations cannot passively wait for things to improve. Healthcare finance leaders can act today to drive financial and operational performance improvement in the future.
Effective cost management in the COVID-19 era
The median hospital Operating Margin dropped precipitously in the early months of the pandemic, hitting a low of -8% in April and May. Excluding federal funding from the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Operating Margins remained below 2019 levels for much of 2020.
According to Syntellis’ Healthcare Financial Trends Report, 82% of respondents cited cost management and reductions as very important to course-correcting the impacts of COVID-19. However, accurately capturing, assessing, and modeling the costs related to ongoing COVID-19 requires advanced costing methods that are both methodical and forward-thinking. Consider the following approach to a long-term costing configuration:
● Take inventory of the changes made in source systems, so these modifications can be addressed within the structure of the cost model.
● Identify areas where new cost categories may be required. Common examples include PPE tracking or other revenue offsets.
● Review the clinical criteria to identify COVID-19 cases to enable the alignment of specific cost-of-care expenses to the cases, where appropriate. This alignment may include targeting COVID-19 cases with the increased costs or deciding to allow a broader group of cases to absorb the cost based on the organizational view on how to reflect the increased cost.
● Consider the best source of reporting for COVID-19 tracking and whether reporting will be sourced from general ledger, clinical source systems, and/or service line analysis.
● Review the clinical coding and service line mappings to understand how these cases will be captured in service line reporting. Consider the impact of breaking out COVID-19 cases from the traditional service lines.
Using data and analytics to guide decisions
An effective cost management approach has a clear linkage to addressing the challenge of increasing care costs, but mounting pressures to improve profitability and declining volumes require a deeper level of understanding about what’s driving these challenges.
Combining effective cost management with a data and analytics-driven strategy provides reliable and timely data and analytics that empower healthcare leaders to closely monitor performance, respond quickly to needed volume changes, and guide strategy. Yet, according to Syntellis’ report, 76% of respondents said their organizations could and should do more to leverage financial and operational data to inform strategic decisions.
Healthcare finance leaders are often expected to predict the future, but that is unrealistic. Because recovery planning is a data-driven exercise, reliable and trustworthy analytics processes are critical to informing future response plans. Organizations need to examine how to identify and compare population trends across a variety of volume, financial, and clinical measures. By bringing together encounter-specific data (billing and clinical coding) from across the continuum of care and normalizing the data, organizations can more easily support effective analysis. They can then integrate with advanced cost accounting capabilities and comprehensive net revenue modeling to establish a clear picture of financial outcomes.
Digging deeper to find improvement opportunities
Taking these processes a step further, understanding how a local market or similarly sized organizations perform and comparing those metrics to your performance equips organizations for a long and successful future. By comparing an organization’s performance to the deeper data around factors like adjusted discharges, adjusted patient days, ED visits, and operating room minutes, healthcare finance leaders can gain key insights into the root causes and identify where improvement opportunities exist.
To find these opportunities, finance leaders should be asking themselves, how do our adjusted discharges compare to others in our region? Have we adjusted goals and plans to reflect market realities? Which service lines are contributing most to discharges? Addressing these types of questions with data insights can provide healthcare finance leaders with the ability to identify and analyze those factors and develop data-driven solutions.
Many factors will influence how quickly hospitals and healthcare systems recover from the economic turmoil of 2020 and the ongoing COVID-19 crisis. But prioritizing effective cost management combined with a process-driven analytics strategy arms healthcare finance leaders with the foresight to look beyond the pandemic, and to the road ahead. While the future may not be smooth, it’s critical that healthcare finance leaders take on new strategies and leverage new tools to ensure they have a comprehensive view of current and future challenges to unlock new opportunities for improvement. By learning from the challenges of the past year and adapting to changes, the healthcare industry will be better equipped to plan, budget and prepare for future crises.
About the author: Kermit S. Randa is the CEO of Syntellis Performance Solutions.