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What post-COVID-19 means for practices and hospitals


The healthcare landscape will look very different in this new world

It’s no secret that COVID-19 has wreaked havoc on the U.S. healthcare economy, which previously had been described as recession-proof. Many believe that because the demand for healthcare-related services continues to grow, the providers of those services will stay busy and thereby generate revenue in both good and bad economic times. Moreover, you would think that, as an illness, COVID-19 should have bolstered the world of medical economics. Who would have expected that a worldwide illness – a declared pandemic – would bring the medical world to its knees?

Surgical volumes Are dropping to historic lows

Sadly, the medical community was not equipped to handle a healthcare crisis of this magnitude or the manner and speed in which it spread worldwide and throughout the US. The availability of hospital beds and necessary equipment to treat COVID-19 patients became a priority, unfortunately, at the expense of other illnesses and surgical procedures. In some situations, potential patients put off going to the ER or seeking immediate medical care, and surgeons were forced to cancel and hold off on elective surgeries. According to a 2011 study by AHRQ, surgical admissions are responsible for 48% of hospital revenue. A study conducted by abeo tracking weekly surgical volumes for hundreds of hospitals and ambulatory surgery centers (ASCs) across the country, reports total surgical volumes dropping to historic lows, ranging anywhere from 0% to 60% of pre-COVID-19 volumes, with weekly median surgical volumes dropping to around 35% at its worst. Recognizing that some hospitals and hospital systems operate at or near breakeven, losing 65% of their surgical volume could potentially bury them. As surgical volumes begin to ramp back up with the return of elective procedures, hospital administrations across the country may be forced to modify business plans and related budgets to accommodate a post-COVID-19 environment. Many are concerned that the new normal – at least for some extended period - may be lower than pre-COVID-19 volumes, which would simply exacerbate existing financial pressures.

Practices Are rethinking long-term plans

These surgical volume decreases have also devastated surgeons and anesthesiologists, forcing many to make difficult decisions throughout the pandemic and in planning for the post-COVID-19 landscape. With the loss of elective procedures, many practices were forced to lay off, furlough and/or cut the pay of not only supporting staff but even the providers themselves. As financial pressures grew, physician practices across the country took advantage of COVID-19-inspired federal subsidies to bridge the financial gap. Some of these subsidies must be repaid, creating additional future liabilities, while others were provided as a grant with forgiveness, assuming the recipients can meet certain provisions. The new challenge for these practices is trying to manage staffing as surgical volumes begin to ramp up. Increased staffing means increased staffing costs. Unfortunately, collections typically lag behind the surgical procedures on average between 35 to 50 days. Therefore, while staffing demands are ramping up, collections are still on their way down, creating additional cash flow problems. To say the least, these types of hardships in the surgical arena, never previously witnessed, have created new concerns in the minds of providers. Accordingly, events of this magnitude can cause providers to rethink their long-term plans, which may include looking for alternative practice models.

Hospitals lose millions and seek recovery strategies

Sadly, the impact of COVID-19 has forced some frail hospitals to close their doors, due to the loss of millions in revenue. As with medical practices, hospitals are being forced to rethink their short and long-term strategies. Many were forced to furlough masses of employees, dramatically reducing overhead to stay afloat. Some may turn to their vendors for help through repricing and contract renegotiations. These vendors include contracted, hospital-based physician practices, including, but not limited to, anesthesia, emergency medicine, hospital medicine and radiology. Specialties, such as anesthesiology, require a subsidy from the hospital to augment their practice revenues because typical reimbursement from insurance companies and self-insured patients will not cover their overhead. With continued downward financial pressure on hospitals, they are turning to their subsidized, hospital-based physician practices to renegotiate lower subsidies, sometimes even prior to their contract renewal dates. The effects of this pandemic will likely accelerate this trend. When practices refuse to accept lower subsidies, hospitals will often put their contracts out to bid. Practice management companies view these as opportunities to grow their footprints through what is referred to as organic growth, as they obtain the hospital contract to provide the specialty service versus purchasing the practice outright. Hospital and practice consolidation activity will increase

Hospitals and medical practices alike will continue to look for ways to deal with these increased financial and administrative burdens, especially having been compounded by COVID-19. The mounting pressures will likely result in additional hospital and medical practice consolidations through increased merger and acquisition activity. These consolidations, however, will not be isolated to individual hospitals and medical practices, but will likely include hospital systems and sizable national practice management companies as well. For example, the industry recently witnessed North American Partners in Anesthesia (NAPA) acquire American Anesthesiology from Mednax. Several hospital consolidations are already underway, with others being contemplated.

As hospitals and practices continue to reel from the effects of COVID-19, many will look for opportunities to transfer some or all of these burdens. Mergers may provide an attractive option for those hospitals and practices that do not want to sell and/or give up complete control to an acquiring entity, but instead wish to retain some local independence, while potentially gaining resources not otherwise available to a smaller entity. The growth obtained in a merger may allow the new, larger, combined entity to obtain additional needed resources while spreading out the administrative and financial risks, liabilities and burdens through economies of scale. Alternatively, we should see a significant spike in acquisition activity, whether through organic growth or direct acquisitions. COVID-19 has exposed a new pool of hospitals, hospital systems and medical practices that are ripe for acquisition and that will likely begin looking for potential suitors. This creates opportunities for investors and acquisition partners who can and are willing to provide an infusion of financial and intellectual capital.

Living in a post-COVID-19 world

While the proliferation of investment capital abounds, and pressures to drive down expenses while increasing revenue continue, the healthcare landscape will look very different in a post-COVID-19 world. Combine those elements with shell-shocked hospitals and medical practices still reeling from what is hoped to be a once-in-a-lifetime pandemic, and there is little doubt hospital and practice consolidations will increase as we enter the post-COVID-19 world.

By John Friedel, Vice President of National Accounts at abeo, a pathfinder in revenue advisory, services and technology solutions that help to drive optimization, compliance and efficiency surrounding hospital-based specialties like anesthesia.

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