Sustained Strain on the Healthcare System
The COVID-19 pandemic lingers as does a critical eye toward the overall health of our healthcare system.
Millions of dollars have gone to relief, but in some cases, it may be masking or even exacerbating some systemic issues, rather than addressing underlying causes. The 2022 BDO Healthcare CFO Outlook Survey found that healthcare’s financial and operational outlook shows encouraging signs of progress, but significant risks remain that could threaten sustainability and the ability to provide care if not addressed.
In short, it’s a story of sustained strain on resources — from capital to the workforce, to the supply chain — but also a renewed sense of purpose and optimism for the future of care.
Financial Health Checkup
Most healthcare organizations report that they are in peak condition. Nearly two thirds say they are currently thriving compared to 50% last year, and a vast majority expect they will be thriving in one year. Healthcare CFOs are also quite bullish for revenue. Nearly three out of four respondents expect revenue growth, with 27% expecting a 10-25% increase.
After several volatile years, most organizations are prioritizing stability: 53% say they will seek gradual, continuous growth in 2022.
As hospitals and physician practices get closer to the new normal of care, patients are returning to procedures and check-ins they put off at the height of the pandemic. Preventative and behavioral health are also growing concerns for consumers as the pandemic proved the importance of whole-body health in fighting off disease and managing through challenging times. Meeting these high revenue goals, however, may require new areas of investment.
SPOTLIGHT: Investing in the Patient Experience
The course of the pandemic, societal and economic change have significantly altered service expectations and delivery across every industry, including healthcare. As they plan not just the industry’s return, but its resilience, healthcare providers know that the same models that brought them success in the past may not be enough for the future. So, to meet their high revenue expectations, they’ll invest in their most important stakeholder: the patient.
To create an outstanding experience that keeps patients coming back, healthcare organizations should consider doing the following:
- Create an atmosphere of safety, particularly when patients need to seek care in-person.
- Use telehealth and patient portals to encourage patients to become more engaged in their own care.
- Invest in health equity in their communities to ensure everyone is receiving the care they need to stay healthy.
Path to Profitability
Top line growth is only one part of healthcare’s financial outlook. It’s no secret that rising costs have been a significant burden for most industries, and healthcare is no exception. While 69% of healthcare organizations expect an increase in profitability, many organizations will need to take major steps to make it happen. Just under half of organizations (45%) will undergo a strategic cost reduction exercise to meet their profitability goals.
When it comes to improving profitability, healthcare organizations should closely examine costs across the entire organization, including debt restructuring, workforce and supply chain.
Debt and Cash Decisions
There’s significant optimism for revenue, and not a moment too soon — revenue increases will be crucial to the stability of the industry in 2022, especially as many healthcare organizations are currently struggling with liquidity.
When looking at each subsector, it’s no surprise that outpatient and ambulatory surgery centers, as well as long-term and post-acute and home health organizations struggled the most to meet their debt and/or loan covenants in the past 12 months. These sectors are experiencing outsized repercussions of the COVID-19 pandemic. In particular, long-term care facilities, like nursing homes, saw masses of patients leave during the pandemic and not return, compounding their financial difficulties.
Under the CARES Act, the Provider Relief Fund (PRF) offered healthcare providers the cash they needed to remain operational, but there is uncertainty around whether some organizations will need to pay back these funds.
Many healthcare organizations are also struggling with meeting their bond covenant obligations, and that trend is likely to continue through the year given the issues related to increased costs of supplies, staffing challenges and the risk of supply chain disruption.
Healthcare clinicians, frontline workers and staff have prevailed through unprecedented challenges, but unfortunately many did not emerge unscathed. Clinicians and healthcare workers are leaving the industry in droves, and burnout and mental health concerns will linger for years to come. From February 2020 to November 2021, the U.S. lost nearly half a million healthcare workers, according to the Bureau of Labor Statistics, and strikes have persisted throughout the past year.
One area where the workforce strain is perhaps the greatest is in nursing. Many nurses are choosing to become traveling nurses as opposed to seeking employment in hospitals.
As a result, hospitals are understaffed, and in many cases, physicians are pushed to take over the nursing function alongside their workloads, worsening burnout in the organization.
And the burnout trend is likely going to continue. ICUs are expanding as hospitals see greater volumes of sicker patients. Furthermore, larger hospitals and health systems are poaching talent from smaller entities, leaving independent and smaller healthcare providers in desperate need of staff. All these challenges are coming to a head as vaccine mandates add further instability to the healthcare industry, leaving healthcare organizations contending with uncertainty about the future of employment.
While it will not be easy or costless, many healthcare organizations are stepping up to support their people.
- 42% are investing to address frontline worker burnout.
- 40% say retaining key talent will be a top workforce challenge in 2022.
- 40% say attracting new talent will be a challenge.
- 35% say addressing employee health and wellness needs is a challenge.
To address these challenges, healthcare organizations need to reassess their wages and benefits. Over 2022, we expect to see significant growth in wages in the healthcare sector, particularly for nurses and other front-line workers.
Supply Chain Strain
The global supply chain has also faced significant challenges that are likely to continue into 2022. Eighty-four percent of healthcare CFOs say supply chain disruption is a risk in 2022, and for good reason. The reality is there are risks at every point along the healthcare supply chain that could threaten operations, access to supplies and the ability to provide care. Even now, some organizations are closing ORs because they simply don’t have the supplies — or the staff — to operate them.
In addition, the high costs of materials, transportation and building in protections and redundancies may challenge healthcare organizations in the year ahead. In fact, 17% say cost reduction is their biggest supply chain priority for 2022. Achieving profitability gains in 2022 will likely require a fresh look and changes to current supply chain operations.
Healthcare’s financial, personnel and operational resources will likely continue to be in high demand in the year ahead. CFOs should make strategic choices, backed by data, to ensure effective prioritization of patient and clinician care while still managing rising costs across every area of the organization without increasing the cost of care.
The COVID-19 pandemic understandably exacerbated many of the healthcare industry’s operational challenges — from lack of affiliation with healthcare systems to high reliance on Medicaid funding — and the time is right to take action and build resiliency for the future.
While temporarily tight liquidity may be expected, sustained challenges with insufficient cash on hand or struggles obtaining financing or servicing debt are signs of distress that healthcare organizations should take seriously.Healthcare organizations concerned about their financial health should review the underlying causes of their distress — gain an understanding of what can be traced back to the pandemic and which challenges will persist when it’s over. From there, they should consider seeking advice from financial advisors who can help reconsider budgets, reevaluate leasing decisions, address risks of bond covenant violations and consider additional financing options.
Looking to boost your financial resilience to face the year ahead with confidence?
The 2022 BDO Healthcare CFO Outlook Survey polled 100 healthcare industry CFOs with revenues ranging from $250 million to $3 billion in October 2021. The survey was conducted by Rabin Research Company, an independent marketing research firm, using Op4G’s panel of executives.