The COVID-19 pandemic landed on American shores a year ago, shutting down the US economy and placing enormous pressure on providers to care for those inflicted with the contagion. Already under margin pressure, the COVID-19 pandemic has wreaked havoc upon health system business models and generated unprecedented operating losses.

This article will address the financial pressures inflicted on health systems due to COVID-19 and strategies for minimizing margin pressures. More importantly, it will explain how the pandemic is accelerating the movement to value-based business practices. It will further explore how enlightened health systems can simultaneously manage the short and longer-term strategic and competitive challenges arising from the COVID-19 pandemic.

The Bottom Fell Out

Over the past year, the U.S. healthcare system aggressively fought COVID-19 by building patient surge capacity, scouring for lifesaving ventilators and personal protective equipment (PPE), massively expanding virus testing and tracing, recruiting volunteers to fortify frontline staffing and reconfiguring patient engagement practices.

As health systems have flexed to increase their COVID-19 treatment capacities, they have seen dramatic declines in non-COVID-19 admissions, surgeries, Emergency Department (ED) visits and revenues. Combined with increased costs for COVID-19-specific labor and supplies, health systems are experiencing breathtaking financial losses.

The  federal and state governments understand the problems confronting health systems and are taking steps to address them. They have relaxed regulatory restrictions and instituted new payment codes to encourage more flexible, efficient and timely care delivery. They also are funding programs to provide financial relief to providers as the pandemic unfolds in real time.

Notwithstanding the massive efforts to mobilize and fund COVID-19 care, not all providers will survive the pandemic intact. Quorum’s potential bankruptcy filing is a worrisome signal that the pandemic poses systemic challenges for many providers.

Combating the Pandemic

When organizations conduct post-mortems on their crisis management, most conclude that they should have responded more quickly and aggressively to the crisis. Risk aversion, hesitation and lack of vision impede responsiveness and exact an organizational toll.

In tackling the challenges posed by COVID-19, health system leaders cannot ignore the macro forces driving the industry toward value-based delivery. Enlightened leaders will address short-term challenges, to the extent possible, in ways that contribute to long-term organizational sustainability.

Anticipation and responsiveness matter. The current operating environment for health systems is dynamic, fluid and chaotic. To apply military terminology, health system leaders need to avoid, whenever possible, being O.B.E. (“overcome by events”). This requires acknowledgement (things can go wrong), imagination (what could go wrong), and scenario planning (how can they go wrong).

During crises, both financial and strategic flexibility are vital. Outcomes trump process. Leaders focus on solving “jobs to be done” in real time. Great organizations, when and wherever possible, push decision making with accountability to frontline staff.

Strong leaders make decisions with accurate and actionable data. They communicate clearly and openly. Their actions and consistency of purpose build trust among individuals and between teams. Together, the enterprise unites against the common foe (e.g. COVID-19) with a shared vision of success and a template for taking action.

Even with great leadership and strategic vision, organizations without resources can still fail. In crisis periods, cash is king. It creates time and flexibility to adjust tactics to operating realities. Health systems, to the extent possible, must generate enough liquidity to maintain strategic flexibility during the COVID-19 pandemic.

Tactics for expanding liquidity could include cutting nonessential services, reassigning or furloughing employees, delaying capital expenditures, expanding credit lines, collecting receivables and delaying payables. With adequate liquidity, health systems are better able to withstand near-term declines in revenues, profits and cash flow. Without it, they become more vulnerable.

Financial and strategic flexibility are inextricably linked. With financial flexibility, organizations can be more open to innovative, even unorthodox solutions. The emergence of virtual care models illustrates the power of a crisis to break down organizational barriers to change.

An executive from a large regional health system, greater than $4bn NPR, said daily virtual care visits more than quintupled between March 17 and April 8, 2020. During the same time, traditional face-to-face patient visits decreased by more than fifty percent. They describe the process through which the organization managed this remarkable transition to virtual care.

As illustrated by this large regional health system’s virtual care experience, crisis periods often bring out the best in people and organizations. Their efforts to solve the “jobs to be done” not only relieves short-term pressures, they can become a catalyst to organizational transformation.

Winning the Peace

The COVID-19 crisis gives health systems a chance to overcome the organizational inertia that often frustrates progressive reforms. Health systems should begin to position for recovery now even as they battle COVID-19.

A 2009 Harvard Business Review article by John Quelch and Katherine Jocz notes that companies often gain market share exiting from recessions. Economic turmoil disrupts the status quo and forces buyers to reevaluate and re-prioritize their purchasing decisions. The authors stress that successful companies acquire new customers by streamlining product and service portfolios, improving affordability and bolstering trust. Dislocation creates opportunity.

Healthcare’s competitive landscape was already changing in fundamental ways before COVID-19. The COVID-19 pandemic is helping to accelerate those changes.
Enlightened leaders are using the crisis to advance consumerism, digital connectivity, asset-light business models, strategic partnerships, increasing productivity and other value-creating strategies. This approach has the dual benefit of solving short-term COVID-19 problems more effectively while improving longer-term organizational competitiveness.

The pandemic also has created opportunities for new entrants to make their mark on healthcare. Numerous health systems have leveraged their nascent telemedicine platforms quickly, enabling them to scale their virtual care services rapidly in response to the immediate patient care demands. COVID-19 has become a proving ground for early-stage telehealth companies. They are here to stay.

Center for Medicare and Medicaid Services (CMS) has taken several steps that enable providers to staff and operate more efficiently. They include HIPAA waivers, payment for virtual visits, expanded service scope for professionals and new guidance for elective surgeries.

As providers adapt to this more progressive regulatory and payment environment, perhaps many of these provisions will become permanent. The crisis gives policymakers the opportunity to reshape healthcare’s regulatory landscape in ways that help promote level-field competition, data sharing, and innovation. No industry needs this more than healthcare.

As happens in any truly disruptive period, clear winners and losers emerge. Healthcare will experience more consolidation as consumption patterns drive toward value, transparency and personalization. Healthcare organizations should already be thinking about how they will reclaim its lost volume and then increase their organization’s market share post COVID-19.  Many health system executives already have this focus, as one articulated:

Healthcare’s Finest Hour

In the years to come, healthcare will remember the spring of 2020 as the time when the industry recaptured its soul. The dedication and courage of frontline caregivers during this pandemic is awe inspiring. We will recall and honor their sacrifices. They have rekindled appreciation for healthcare’s humanity and healing mission.

We also will recall the supply shortages, the miscommunication and logistical failures that made their vital work more difficult, dangerous and heartbreaking. In the pandemic’s wake, enlightened companies will deliver on commitments to serve doctors, nurses, technicians and aides better. Healthcare systems that do this will win the public’s confidence and trust. They will prosper.