With COVID-19 restrictions starting to lift nationwide, logic would follow that hospitals and physician practices would gear up for a wave of patients from deferred surgeries and appointments during the shutdown. However, a Commonwealth Fund study indicates while some volume has been restored in May 2020, it is still down 30+ percent from pre-crisis levels. The most significant volume declines have been in surgical/procedural specialties and pediatrics, while the drop in adult primary care and behavioral health specialties has been less severe.
With this information, it is important to explore why volumes are not returning, what this means for physician practices, and what options may exist to help cope with the issue.
Factors Impacting Lower Volumes
The impact COVID-19 will ultimately have on the healthcare industry will go beyond the direct impact of the number of infections and deaths. Observers believe there has been a psychological shift in the way many patients view healthcare facilities, attempting to avoid them for fear of infection. The potential for a "second wave" of COVID looms large in the mind of the public while also hints at the possibility of resuming mandated closure of certain practices. Part of the problem could simply be convenience, as Professor Thomas Campanella suggests in an interview with Quadax that 25 percent of patients who put off elective procedures may forego surgeries indefinitely instead of rescheduling.
But broad macroeconomic trends also present volume headwinds. With U.S. unemployment spiking to nearly 15 percent in April, the number of uninsured Americans rises, as well. Since most patients receive their healthcare insurance through their employer, many now-uninsured people can be expected to defer non-urgent care. Even insured patients may feel insecure in their income and avoid procedures that include significant patient responsibility amounts. Unless carefully managed, practices may also experience collection problems. The practice must carefully weigh the risk of not collecting fees at the point of treatment versus losing a profitable patient encounter.
Implications for Medical Practices
The reduction in patient volumes will vary based on the type of practice, location and patient demographics, but as we examine healthcare facilities, there are common issues that must be dealt with coming out of COVID-19. For instance, new safety measures may limit volumes and add costs to patient encounters.
The initial ramp up coming out of the pandemic may take longer than expected. Physicians surveyed were relatively pessimistic about how long it would take to "recapture" lost patients and procedures. For example, an April Canaccord Genuity survey showed only 8 percent of respondents said it would take 12 months to recapture those lost procedures, but that percentage increased to 25 percent in a more recent survey.
A further obstacle to reopening is capital to fuel a ramp-up. Unless cash was carefully husbanded when COVID hit, many practices have burnt liquidity and now have less resources to fund staffing and other costs to recommence the practice. We observe that lenders are skittish about lending to physician groups except under an asset-based formulaic approach (usually based on accounts receivable), or where they have pre-existing relationships.
In a trend accelerated by the pandemic, we are expecting to see an increasing shift away from hospital care even as elective surgery procedures are expected to steadily ramp up over the next six months. In a survey done by Jefferies, 12 percent of current orthopedic procedures are performed in ambulatory surgery centers, but that number is expected to rise to 20 percent over the next six months. While negatively impacting hospitals, this trend will prove beneficial for practices that have their own surgery center.
Recommended Next Steps
The factors listed above have caused healthcare professionals to reevaluate the economics and strategy for their businesses, as the model for predictable success has changed. If volumes steady at only 70-80 percent of pre-crisis levels, then now is the opportunity to review and reconsider the strategy of your practice to create a stronger, more sustainable model or take other remedial steps.
Closely examining the staffing for both physicians and administration is imperative to managing costs during the ramp-up period, as the baseline expense expectations will need to be reset. To manage liquidity, all options need to be explored including relationships with lenders, strategic partnerships with hospitals and competitors, and private equity funding or negotiating burden-sharing with vendors and lessors. If not already undertaken, plans may need to include negotiating temporary relief with landlords and lenders to lower operating expenses and improve short-term cash flows.
Perhaps most importantly, providers must start with re-earning the trust of patients. Whether it is reducing the fear of a patient visit or offering more convenient treatment options, the industry must regain the public's trust before the return of pre-crisis volumes can be expected.
Clare Moylan, CFA is principal with Gibbins Advisors, which is focused on C-level healthcare operations and restructuring expertise. Based in Nashville and Syndey, Moylan has a broad base of experience across the healthcare continuum including operations and turnaround management, strategic planning, business analysis, performance improvement and litigation support. For more information, go to gibbinsadvisors.com.
Jeff Bushong, MBA is a principal with PYA. Based in Brentwood, he brings more than three decades of expertise serving healthcare providers with a focus on consulting and advisory services in practice operations, performance improvement, business development, revenue cycle, and physician billing. For more information, go to pyapc.com