An Effective Financial Response to COVID-19: Three Ways to Leverage Data
In a stable healthcare environment, financial leaders generally use historical data to create a financial strategy, forecast volumes, and predict community needs. For example, a chief finance officer would use data from previous years to predict next year’s budgets, as well as which services to offer and where to provide them. With a novel coronavirus challenging health systems like never before, it is time for a new financial response to COVID-19.
The pandemic has made the traditional, historical-data approach obsolete and highlighted the imperative for health systems to create a new, effective financial response to COVID-19. Using past financial data to predict the future can’t sufficiently reflect a health system’s financial needs in a pandemic. As the coronavirus continues to evolve and threaten financial sustainability, health systems cannot rely on government funding or a rapid end to the pandemic; rather, they must take a more strategic, data-driven approach to financially survive COVID-19.
The Past Is No Longer Indicative of the Future: A New Financial Response to COVID-19
Past data will prove valuable in the long run when operations return to a steady state, but it lacks relevancy in the current environment of unprecedented changes. For example, with the surge of COVID-19 cases, health systems put non-essential procedures on hold to help increase ICU bed availability. However, many health systems didn’t experience the forecasted increase in COVID-19 cases during the pause in non-essential procedures. For these organizations, the lack of added COVID-19 patients left them with underutilized areas of their hospitals and loss of revenue from both elective and COVID-19 cases.
New payment codes and an acceleration in payments from CMS also impacted many health system’s revenue cycle. Additionally, a portion of co-pays and co-insurance stopped abruptly when previously-employed individuals suddenly lost health insurance coverage, making it even more difficult to formulate a financial response to COVID-19.
An Effective Financial Response to COVID-19: Three Ways to Leverage Data
With a rapidly changing coronavirus, health systems face new financial challenges every day. And, while financial leaders implemented cost-cutting tactics (e.g., layoffs) in response to COVID-19, they didn’t eliminate fixed costs, such as administrative overhead, building leases, utilities, and maintenance contracts. So, while revenue took a hit from halting elective procedures and regular office visits, health systems have continued to pay fixed costs in the short term and now need to evaluate how to adjust in the longer term.
Despite cost-saving strategies and federal stimulus money, health systems still struggle to develop a strong financial response to COVID-19 on already-thin operating margins. However difficult these new hardships may be, organizations can make progress towards financial recovery by implementing three key strategies.
#1: Prioritize Access to Real-Time Data
COVID-19 has changed the way health systems use data to understand their financial well-being. Organizations in a stable market haven’t had to react quickly to world disasters or pandemics, like COVID-19. With a lack of historical data to predict the future ramifications of the novel coronavirus, healthcare leaders must have access to real-time (or near real-time) data.
Real-time data helps health systems react effectively to first-time situations like COVID-19. Organizations need the latest data to guide scenario planning, a process in which a health system uses up-to-date data to plan and prepare for multiple COVID-19-related scenarios (e.g., worst case, middle case, best case). Without real-time insights, health leaders must add their best guesses to an already uncertain market.
#2: Understand Data at a Deeper Level
With operating margins entering negative territory for many organizations, leaders need a detailed picture of their current financial situation. A thorough analysis allows leaders to understand their organization’s revenue and expense structure, including which procedures and cases contribute most towards margins. Deep understanding also facilitates negotiating contract arrangements with payers. When financial leaders dive into the nuanced data combined with an organization’s fixed costs, they understand the true cost of providing care—a critical insight for effecting real change.
Regularly reviewing revenue, cost, and quality data at a deeper level also allows leaders to understand how to better utilize each area of the hospital. For example, detailed data demonstrates needs within an ICU. Then, in the event of a planned scenario, the hospital is prepared with the right number of ventilators, beds, and staffing. Granular data, coupled with a capacity planning tool that balances demand with resources, such as the Health Catalyst COVID-19 Capacity Planning Tool (see Figure 1), also helps leaders prepare for multiple scenarios at the same time.
Figure 1: The COVID-19 Capacity Planning Tool.
#3: Realize Margin and Cost by Service Line
The pandemic has highlighted the value of understanding margin and cost by service line (e.g., cardiovascular, neurology, or oncology) as healthcare systems struggle with overall margins. A deeper understanding of data by service line helps leaders quickly react to COVID-19 and make data-driven changes within that service line to contribute to overall margin.
Service line leaders need to be armed with underlying line item details to identify ways they can financially adapt to COVID-19-driven changes on their specific service line’s procedures and delivery of care. For example, a leader could decide to expand bariatric gastric bypass procedures, but if she only has access to the average costs (spread over multiple service lines or multiple procedures) for all the different type of bariatric surgeries (e.g. gastric bypass, sleeve, or lap band), she might make a poorly informed decision. She might think the health system is profiting from certain procedures when it’s not. Accurate, detailed cost information reveals specific areas of profitability, enabling changes to the appropriate areas or procedures, instead of assuming all procedures are profitable based on the high-level data. Service line leaders can help implement these changes with the support of frontline staff if they understand the profitability within their service line.
Because decision making occurs at every level within an organization, all leaders need access to this detailed, real-time data. Usually only high-level leadership has access to in-depth reports, if at all, leaving mid-level service-line decision makers without critical insights. Service-line or department leaders generally have only the previous month’s overall revenue and expense data. With just general and often outdated data, service-line leaders have had to make poorly informed decisions with significant cost implications. Instead, access to granular, up-to-date data for every level of leadership within a service line supports more timely care, correct labor-with-volume prediction, and appropriate ongoing responses to rapid market changes.
Data Lays the Framework for An Effective Financial Response to COVID-19
Although health systems can always learn from historical trends, financial leaders need to realize that even when the market returns to a steady state, another crisis is inevitable. COVID-19 is an opportunity to learn and prepare financially for future emergencies.
Health systems can manage financial challenge by prioritizing access to real-time data, reviewing data at a granular level, and examining service-line-level data. Leveraging these three data strategies will help leaders better understand payment models and profitability, guide scenario planning for COVID-19, and prepare their health systems for future challenges.
Would you like to learn more about this topic? Here are some articles we suggest:
- Healthcare Trends During COVID-19: Top Five Areas to Watch
- A Sustainable Healthcare Emergency Management Framework: COVID-19 and Beyond
- Health Catalyst Launches COVID-19 Patient Data Repository to Speed Vaccine Development
- Hospital Capacity Management: How to Prepare for COVID-19 Patient Surges
- Steps for Effective Patient and Staff Contact Tracing to Defend Against COVID-19 Spread