Six Strategies to Navigate COVID-19 Financial Recovery for Health Systems

Six Strategies to
Navigate COVID-19
Financial Recovery for
Health Systems

© 2020 Health Catalyst
Proprietary. Feel free to share but we would appreciate a Health Catalyst citation.
Dan Unger
Senior VP and General Manager
Financial Transformation Business
Health Catalyst
This article is based on a webinar by Dan Unger, Senior Vice
President and General Manager of Financial Transformation
Business at Health Catalyst, titled, “COVID-19 Financial
Recovery: The Effects of Shifting to Virtual Care.”
Navigating COVID-19 Financial Recovery

According to a survey from the American
Hospital Association forecasting
healthcare performance through 2020,
inpatient volumes will be down 19 percent
and outpatient volumes by 34 percent.
Meanwhile, COVID-19 will continue
pushing increases in personal protective
equipment (PPE) expenses.
Together, dropping volumes and
escalating costs translate to 2020
projected industry losses of $323 billion.

Federal provider relief funding (e.g., the
CARES Act) offers assistance to healthcare
organizations.
However, while a vital phase of financial
recovery for health systems, federal relief
will only cover about 50 to 60 percent of
health system losses.
To regain financial stability, organizations
must move through additional recovery
phases that will help return to pre-
pandemic financial health.

The Four Phases of COVID-19
Financial Recovery for Health Systems
While individual organizations face unique
challenges, collective experience of
COVID-19 impact and pre-pandemic
financial health suggests four phases of
financial recovery for health systems:
 Phase #1: Receive and Account for
Stimulus Funding
 Phase #2: Recover Revenue and
Accelerate Cash
 Phase #3: Reinvesting in Long-Term
Core Capabilities
 Phase #4: Reinventing Care Delivering
Operations

Phase #1: Receive and Account for Stimulus Funding
Healthcare industry financial strain become
a national concern early in the course of the
2020 pandemic, prompting Congress to
respond with $100 billion in relief for
hospitals and other healthcare providers.
Receiving and accounting for these
stimulus funds (including understanding the
terms and conditions around qualifying
expenditures, risks, and compliance
requirements) is the first phase of financial
recovery for most organizations.

Phase #1: Receive and Account for Stimulus Funding
However, as stated above, Congress’s
welcome relief funding only covers a portion
of the projected industry losses in 2020,
making the next three phases of financial
recovery at least as vital as the first.

Phase #2: Recover Revenue and Accelerate Cash
A starting point to recover revenue and
accelerate cash is resuming elective
surgeries and ambulatory visits, which
organizations paused or slowed during
the acute phases of COVID-19.
These types of non-emergent care are
significant sources of revenue for some
provider groups or large integrated
delivery networks (IDNs), as well as a
vehicle for needed patient care.

Phase #2: Recover Revenue and Accelerate Cash
After restarting paused operations, the
next step of phase two is to capture
revenue and accelerate cash.
Organizations can achieve both through
revenue cycle processes such as
collecting on outstanding high-dollar
accounts, entering charges, and resolving
discharged not final billed (DNFB) cases.
In short, providers need to get owed cash
in the door as quickly as possible.

Phase #3: Reinvesting in Long-Term Core Capabilities
With potentially lower volumes and lower revenue in the future, health systems
must understand and manage their costs.
To do so, many health systems will need to invest in key systems and processes:
To support cost understanding
and management, organizations
need an activity-based costing
solution, such as the Health
Catalyst CORUS™ Suite, that
delivers detailed and actionable
cost data across the analytics
environment.
To regain and sustain
organizational well-being, health
systems need real-time patient
safety and population surveillance
(e.g., the Health Catalyst Patient
Safety Monitor™), as some
projections put the COVID-19
outbreak at another year or so.
More events like COVID-19 are
possible in the future, making the
ability to identify and quickly
address surges essential.
Capacity planning tools (e.g., the
Health Catalyst COVID-19
Capacity Planning Tool) will help
organizations prevent repeated
shut-downs during future
emergencies.

Phase #4: Reinventing Care Delivering Operations
The abrupt drop in patient volume and shift to
virtual care makes reinventing health system
operations and care delivery mission critical.
Before March 2020, Medicare beneficiaries
rarely used telehealth.
From mid-March to mid-June, however, 38
percent of all Medicare beneficiaries who had
an evaluation and management (E/M) visit did
so via telehealth (Figure 1).

Figure 1: The shift to telehealth

While Medicare is just one portion of the
market, this data is part of the trend
towards a meaningful increase in virtual
care adoption.
Telehealth provider Teledoc, for example,
reported 100 percent growth in visits
from Q1 in 2020 over 2019, with a
significant portion of that growth just
from the increase in March.

The Shift to Telehealth and Its
Financial Considerations
As the rapid growth shows, COVID-19 has
pushed a lot of providers to hastily adopt
telehealth with little time to prepare and
understand the long-term financial
implications.
While remote care has offered a short-term
means of engaging patients with needed
care and regaining revenue for non-
emergent care, the bigger-picture
financial impacts are less straightforward.
Healthcare organizations have much to
consider as they progress with remote-
centric practices.

Pre-COVID-19 Financial Challenges for
Primary Care
In general, healthcare organizations today
lose around $150,000 per primary care
provider (PCP), with only the 90th
percentile and above breaking even on
primary care (Figure 2).
As such, employed physician groups are
already challenged financially, without the
impacts of COVID-19.

Pre-COVID-19 Financial Challenges for
Primary Care
Figure 2: Employed physician group financial challenges

Adapting to the New Competitive Landscape
With the sudden shift to telehealth,
already financially strained providers
have entered a new business landscape,
as COVID-19 has broken down the
competitive barriers between traditional
providers and more modern telehealth
and disruptive care delivery companies.
There’s a lot of movement looking to take
traditional providers’ business, and these
newcomers are often operating beyond
the confines (rules and regulations) of
traditional healthcare.

Healthcare’s new competitors fall into three main buckets:Telehealth-OnlyProviders
MDLIVE, Teladoc,
Doctor On Demand, and
existing companies are
gaining traction. They use
real physicians, not just mid-
levels, offer a variety of
specialties, and more.
Teladoc and Doctor On
Demand focus a lot of their
business on working with
insurance providers and
self-funded health plans to
provide subscriptions.
DirectPrimaryCare
The direct primary
care companies include Go
Forward, Crossover Health,
and One Medical. The
innovative Go Forward is
similar to more modern
subscription concierge
practice. Crossover Health
partners with employers like
Apple, Microsoft, and most
recently Amazon, to deliver
care directly to their
employees.
LargeCorporations
The likes of Amazon,
Walmart, and CVS Health
are entering the healthcare
space. Amazon announced
their virtual care program in
fall 2019 for their employees
in the Seattle, as well as in-
home deliveries and more.
The company also announc-
ed the partnership with
Crossover Health in July
2020 to pilot employee
health clinics near some of
its large centers.

Breaking out of healthcare’s usual rules and
regulations, Teladoc, Doctor On Demand,
Go Forward, and Crossover Health have
business models that overlook coding, CPT
codes, and modifiers, and other procedures
traditional organizations must follow.
Amazon, Walmart, and CVS, on the other
hand, have traditional straightforward
pricing, which bears watching.

It’s important to remember that these
corporations are large employers—
commercial payers that are redirecting
care away from the traditional system into
their own care delivery system.

Competing for Clinicians
As large corporations and other new
providers ramp up competition for
patients, they’ll also compete with
traditional organizations for clinicians.
With burnout and job dissatisfaction
rising, the perks and benefits of these
modern companies pose a threat to
health systems.

According to an industry survey, 79 percent of
PCPs experience some symptom of burnout.
Meanwhile, four out of five of the employed
physicians say their health system employers
are not doing anything to combat it.
And because clinicians drive revenue, losing
them will impact revenue.

These disruptive care delivery companies
are introducing new models of care with a
lot of appeal to clinicians.
New models offer less hassle, with no
coding and documenting for quality
measures and the like.
There’s often less stress due to lower
patient volumes, and with a lot of the
concierge practices and even telehealth,
clinicians can somewhat choose how much
volume they want, as well as more flexibility.

The Unlikelihood of Reimbursement Parity
As well as disrupting healthcare delivery
models, telehealth also stands to impact
healthcare revenue.
Clinicians have historically named
lower reimbursement as the
number one barrier to telehealth.
With CMS declaring they’ll pay
telehealth in parity for the duration
of COVID-19 health emergency,
it’s tempting to consider the
reimbursement barrier resolved.

Long-term reimbursement parity,
however, likely isn’t realistic. CMS
typically pays telehealth at 80 percent
of the normal visit, so if an organization
continues to pay its clinicians on the
work RVU associated with the virtual
code, it will reduce its margin by 15
percentage points.
If organizations have clinicians sit in the
clinic and take some of these virtual
visits, they’re degrading their margin
and receiving lower payment but
maintaining their operational expenses.

As outlined above in the new competitor
descriptions, many companies already
deliver virtual care at a much lower rate
or a combination of virtual and direct
primary care.
With that in mind, insurance companies
will not likely pay full price when telehealth
uses the same infrastructure as in-person
care, and other vendors are offering the
virtual services.

In addition to revenue disruption, healthcare
faces lower overall reimbursement and
higher bad debt.
With a predicted 25 to 43 million people
losing their employer-sponsored health
insurance throughout the pandemic and
over the next year or two, 58 to 90 percent of
these individuals will either shift to Medicaid
or become completely uninsured.

Fixed Costs
On the cost front, over the last decade or
more, many organizations have acquired
or built a network of clinics across
different geographies and specialties.
Frequently, clinicians don’t use all of their
exam rooms—not necessarily indicating
that physicians aren’t busy, but that the
utilization optimization of patient rooms
is lower than it could be.

Fixed Costs
Now, with a 30 percent drop in volume for
these already underutilized large assets and a
potential 30 percent shift of that volume to
virtual care, health systems have considerable
fixed assets and pay duplicate for staffing,
resources, and equipment they’re not using.
As reimbursement goes down and the
delivery model continues to shift,
organizations can’t sustain underutilization.

Fixed Costs
Many new models of care don’t have any office
space or huge fixed assets.
Some competitors, like Walmart or CVS, use
office spaces efficiently by locating them in
their places of normal business.
Many health systems will have to revisit their
brick-and-mortar footprint and make tough
decisions to optimize their clinics.
Fixed costs can’t be fixed anymore. Lower
revenue together with lower cost structures
make fixed costs an urgent area of attention.

Physician Compensation
Physician compensation is the biggest single cost
for healthcare organizations, making it a priority
area as delivery models shift.
As the revenue example showed, the economics
and operations of telehealth differ from traditional
healthcare delivery.
Organizations can’t keep paying doctors on the
same model and even the same rate, as they were
paying them based on estimated total revenue

Physician Compensation
Additionally, work RVUs are abstract and misaligned—
whether the visit is 5 minutes or 45, reimbursement is
the same based on the coded level and billed item.
In the future, health systems may have to
measure physicians more realistically
(something that leads to operations as
opposed to arbitrary work RVUs).
The work RVU based on compensation
plans won’t align with telehealth economics
or incentives.

Six Strategies to Navigate Healthcare
Delivery Shifts and Abrupt Changes
With an understanding of the new revenue challenges
of the COVID-19 era, health systems can follow six
strategies to recover financially and navigate a new
healthcare landscape:
1. Understand Costs
2. Optimize Clinic Space and Other
High-Cost Resources
3. Don’t Be Pennywise and Pound Foolish
4. Address the Economic Realities of Virtual Care
5. Build a New Primary Care Strategy and Business
Model to Compete in this New World
6. Learn How to Take on Real Risk

1: Understand Costs
Top-line revenue is likely to go down and
stay down for the foreseeable future.
Organizations must understand and manage
your costs and make strategic decisions.

2: Optimize Clinic Space and Other High-Cost Resources
With lower volumes, health systems need to
understand their assets and high fixed costs,
which requires understanding the utilization
of these resources—the market, where the
patient populations are, the financials behind
the resources, and potential patient impact
of addressing them.
Organizations need to build a strategy for
delivering virtual care and measure how that
would impact their overall footprint.

3: Don’t Be Pennywise and Pound Foolish
Lowering cost doesn’t mean cutting costs
across the board.
For example, consider investing in
resources like a scribe to help clinicians
with notes, which will allow clinicians to
see more patients.
Understand the full scope of these
decisions, because hiring and investing
may increase productivity.

4: Address the Economic Realities of Virtual Care
Health systems can’t keep
paying clinicians the same way
when the economics and
operations are different.
The clinician compensation
model needs to be simple,
clearly stating what the model
incentivizes.

5: Build a New Primary Care Strategy and Business Model to
Compete in this New World
Large employers, and even small ones, will
likely move volume away from traditional
healthcare systems if they can’t keep up from a
customer service and patient access standpoint
(optimize wait times, scheduling, etc.).
Health systems need to revisit their primary
care model, start developing direct primary
care models for local employers, and better
optimize for virtual and in-home care.

6: Learn How to Take on Real Risk
COVID-19 has exposed the flaws in the
fee-for-service model.
As volumes have gone down, traditional
health systems and their model of just
managing volume doesn’t work.
Systems that have significantly taken on
risk will fare better through this pandemic.

6: Learn How to Take on Real Risk
On the payer side, where they may be 40
to 50 percent of their own volume, and
they’re not paying out claims, they offset
the lower revenue and volume on the
provider side.
Instead of grasping onto the fee-for-service
world or dabbling in between risk models
where there’s only limited upside risk,
health systems must understand their costs
and the populations they can impact, then
take on risk accordingly.

Financial recovery for health systems from
COVID-19 likely won’t look like a return to a
pre-pandemic healthcare business climate.
Health systems with need to evolve from their
older revenue structures and assumptions
and financial practices to adapt to new types
competition and consumer expectations, as
well as shifting infrastructures.
With several elements at play, the industry
move towards virtual care will impact revenue
streams the most.

Thorough understanding of healthcare’s new financial layout
and of the financial implications of the move towards remote
care delivery will help organizations adapt and succeed as
the healthcare economy finds its new normal.

For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

More about this topic
Link to original article for a more in-depth discussion.
Six Strategies to Navigate COVID-19 Financial Recovery for Health Systems
What Health Systems Need to Know About COVID-19 Relief Funding
Bobbi Brown, MBA, Senior VP; Daniel Orenstein, JD, Senior VP, General Counsel, and Secretary
Activity-Based Costing in Healthcare During COVID-19: Meeting Four Critical Needs
Bob Alexander, Implementation Services, Sr. Director
Hospital Capacity Management: How to Prepare for COVID-19 Patient Surges
Jason Jones, PhD, Chief Data Scientist; John Hansmann, MSIE, LFHIMSS, DSHS, Professional Services, VP;
Monica Horvath, Strategic Consultant, Health Intelligence & Product Adoption
Healthcare Trends During COVID-19: Top Five Areas to Watch
Holly Rimmasch, Chief Clinical Officer; Ed Corbett, MD, Medical Officer
A Sustainable Healthcare Emergency Management Framework: COVID-19 and Beyond (whitepaper)
Holly Rimmasch, Chief Clinical Officer; Ed Corbett, MD, Medical Officer
Anne Marie Bickmore, Senior Vice President, Company Operations

Dan Unger joined Health Catalyst in April 2014. He came to Health Catalyst after
working at Accretive Health where he managed a team that worked with the
Intermountain Medical Group to improve revenue cycle processes and reduce
operational costs. Prior to Accretive, Dan worked as a consultant at Equation
Consulting (a physician economics consulting firm) and as a pricing and profitability
analyst at JP Morgan Chase. He graduated from the University of Arizona with
degrees in Finance and Entrepreneurship and received his MBA in International
Finance from the Thunderbird School of Global Management.
Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Dan Unger

Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Health Catalyst is a mission-driven data warehousing, analytics and outcomes-improvement
company that helps healthcare organizations of all sizes improve clinical, financial, and operational
outcomes needed to improve population health and accountable care. Our proven enterprise data
warehouse (EDW) and analytics platform helps improve quality, add efficiency and lower costs in
support of more than 65 million patients for organizations ranging from the largest US health system
to forward-thinking physician practices.
Health Catalyst was recently named as the leader in the enterprise healthcare BI market in
improvement by KLAS, and has received numerous best-place-to work awards including Modern
Healthcare in 2013, 2014, and 2015, as well as other recognitions such as “Best Place to work for
Millenials, and a “Best Perks for Women.”

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