Hospital and health system financial performance has been devastated by the blindside hit from the COVID-19 pandemic. Recovery from the unexpected disappearance of hundreds of billions of dollars in patient care revenue in just a few short months will require both operating discipline and a dynamic approach to budgeting and managing payer relationships. It is imperative that organizations begin now to prepare for the ultimate financial impacts of the pandemic.

Beware the COVID-19 backlash

COVID-19 has resulted in perhaps $2 trillion in activity disappearing from a $21 trillion U.S. economy, more akin to a flash depression than a recession. The U.S. Department of Labor reported on Sept. 17 that, as of the end of August, more than 27 million people were receiving unemployment. And in July, the Urban Institute issued the following preliminary estimates for the more than 10 million workers who lost healthcare coverage with their jobs.

• Perhaps 30% will become uninsured and be unable to pay for needed care.
• One-third will be eligible for Medicaid.
• One-third will be eligible for exchange-based coverage under Obamacare.

The actual uptake rates for Medicaid and exchange enrollment and the extent of growth in uncompensated care will depend on the severity of each state’s downturn.

Key components of an effective strategy for health systems

It seems clear that a post-COVID-19 health financing backlash is already upon us, requiring action by hospitals and health systems. Here are four key components of an effective strategy for dealing with financial uncertainty that health systems should implement.

1. Dynamic budgeting, including rolling forecasts of revenue mix and growth, and continuous tracking of revenue realization by payer class and contract
2. Aggressive cost management to reduce fixed costs and manage variable costs in real time
3. A portfolio approach to manage payer contracts/relationships and protect revenue
4. Investment in growth of telehealth and telework to enhance revenue and reducing expenses

Beyond COVID-19: Preparing for price transparency’s impact on payment rates and collections

Hospitals and health systems must also prepare for the new federal price transparency regulations, effective Jan. 1, 2021, which will exert pressure both on consumer payments and on payer negotiations. Providers with high contract rates relative to market will need to justify their rates by promoting the value of the care, medical education and community service those rates help fund.

Other actions hospitals and health systems must undertake to ensure profitability in the wake of transparency include:

• Working with secondary commercial payers to improve inferior rates and terms
• Communicating more effectively with patients in advance about their share of the cost, and ensuring they receive value for what they spend
• Estimating the actual costs of care for patients more accurately and being prepared for consumer pressure to reduce those costs

You may also be interested in:

• The impact of COVID-19 on payer mix, revenue cycle IT budgets, EHRs, consumer experience, and price transparency for the next 12 months
• How we helped this four-hospital system save $120 million in two years