85% Of Healthcare Executives Planning Aggressive Cost Cuts To Lessen Financial Impact Of COVID-19
Cuts will be rapid, with more than half of executives aiming to achieve reduction targetsin less than six months
CHICAGO, July 16, 2020 /PRNewswire/ -- The Chartis Group, a leading provider of advisory and analytics services to the healthcare industry, announced the release of its Financial Recovery Survey, which shows the majority of the U.S. healthcare system caught between COVID-19 recovery and ongoing financial viability. The urgent need to respond to the magnitude of recent financial losses, along with new pressure to invest in maintaining dual systems of care, have created a complex series of trade-off decisions for healthcare leaders. The next six months will define health systems, significantly impacting their strategic direction and potentially burdening an already stressed workforce. Findings include:
- 40% of healthcare executives expect to take up to 12 months to reach pre-COVID procedural volumes, but volume recapture alone will not be sufficient to return to prior levels of liquidity;
- 45% are aiming to reduce their expense base by more than 10%, necessitating multi-pronged approaches that focus on traditional improvement strategies as well as more complex strategies to optimize assets and reduce fixed costs;
- 90% of respondents are aiming to meet their cost reduction targets in less than 12 months, with 55% pushing even more aggressively to meet their goals in less than six months, putting additional strain on already overloaded resources and potentially creating unintended consequences;
- 90% have concerns about factors that may derail or delay successful execution, including resource bandwidth and managing future COVID-19 surges.
"Hospital executives must reduce costs to offset the reduction in elective procedures and patient visits due to COVID-19," said Pam Damsky, a Director at The Chartis Group. "Given the long-term effect of COVID-19 on patient volume remains unknown, and new financial pressures have emerged, many hospitals will need to make tough decisions, including those that have previously been rejected as unpopular or politically sensitive, such as right-sizing management structures, addressing underperforming assets and restructuring the physician enterprise."
Hospitals have already begun initial cost reduction strategies, which include vendor renegotiations (66%), reduced staffing (62%), executive compensation (59%) and furloughs (47%). However, as the lingering impacts of COVID-19 continue to reduce patient volumes and elective procedures, significantly reducing liquidity, hospitals are looking to more advanced margin improvement strategies such as optimizing their revenue cycle (78%); optimizing labor/workforce management (69%); improving their supply chain (74%); improving patient throughput (50%); streamlining management structures (50%) and improving ambulatory access (50%).
Though executives know that these measures must be put in place, many foresee very real challenges in implementation. Managing future COVID surges (43%), lengthy, multi-level decision making processes (29%), lack of bandwidth to manage improvements (29%) and competing priorities (27%) are the top reasons executives indicate execution may be stalled. The extreme sense of urgency to put these cost reduction strategies into action are also putting additional strains on already burdened resources, which could potentially create unintended consequences, such as employee burnout and potential turnover, or challenges to quality of care and safety, if not managed properly.
"The pandemic has highlighted cracks within health systems' financial structures," said Rob Gamble, Director and Performance Practice Co-Leader for The Chartis Group. "Taking strategic, bold action now to right-size to new volumes, restructure fixed costs and realign operations could not only reduce costs but also improve the quality of care. However, it must be done with the right level of infrastructure, communications, change management and performance monitoring to ensure successful execution and sustained improvement."
About The Chartis Group
The Chartis Group (Chartis) provides comprehensive advisory services and analytics to the healthcare industry. With an unparalleled depth of expertise in strategic planning, performance excellence, informatics and technology, and health analytics, Chartis helps leading academic medical centers, integrated delivery networks, children's hospitals and healthcare service organizations achieve transformative results. Chartis has offices in Atlanta, Boston, Chicago, New York, Minneapolis, Portland and San Francisco. For more information, visit www.chartis.com.
SOURCE The Chartis Group
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