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Concerned About the Sustainability of Your Rural Hospital?

While a Strain to Hospitals, COVID-19 is a Driving Force Behind Positive Transformation

With Jim Kendrick, President and Chief Executive Officer, Community Hospital Corporation, as published in Modern Healthcare, Sept. 2020 

The novel coronavirus has exacerbated sustainability problems that have continuously dogged community hospitals. The American Hospital Association estimates the financial impact of COVID-19 on U.S. hospitals could total more than $200 billion in losses between March 1 and June 30, 2020. However, government assistance such as CARES Act relief funds and PPP loans gives hospitals the buoyancy to reexamine their finances and operations and come up with a strategic plan with a reimagined future.

What is a hospital’s first step toward long-term sustainability?

JK: Hospitals should identify cost savings and optimize revenue to put themselves in the best position for what comes next. Usually, the first step to improving a hospital’s prospects is an operational assessment to evaluate operations, staffing, supply chain, revenue cycle and leadership to maximize efficiencies. Hospitals can then parlay the assessment into an action plan, which leads the hospital from survival mode into a long-term strategic mindset. Granted, operational assessment and long-range planning are an added challenge when hospitals are focused on responding to a virus surge with an unknown timeline. Hospitals have been given a lifeline with government relief funding, and Congress is debating whether to allocate more help in the next COVID-19 relief package.

Which areas of operations should hospitals focus on most?

JK: Traditionally, labor is a hospital’s greatest expense, so optimizing productivity — the right number and mix of staff — can make a big impact. However, supply costs are expected to overtake labor costs as a hospital’s greatest expense, and COVID-19 supply shortages have underscored the need for supply chain efficiency as a critical area of focus. Going forward, we know that a supply chain optimized for flexibility and proactivity will help hospitals withstand disruptions such as further disease outbreaks or natural disasters. It’s clear now that while inventory turns are still important, hospitals should stockpile certain supplies including personal protective equipment. Other supply chain best practices include expanding vendor networks and identifying more domestic sources for supplies.

What new methods can be used to deliver health services?

JK: Community hospitals have been rethinking their business models because they revolve around inpatient care, and patient volumes have decreased. Even before the pandemic, forward-looking community hospitals had begun developing telehealth capabilities as a means of recouping lost revenues. Policy changes during the pandemic have reduced barriers to telehealth access and have promoted the use of telehealth as a way to deliver acute, chronic, primary and specialty care. The rapid adoption of telehealth among providers and patients during the pandemic shows that telehealth is scalable and suggests it is here to stay.

What other operational models should community hospitals consider?

JK: There are many to consider, but I will focus on strategic partnerships — including mergers and acquisitions — because it’s so important that they shed their stigma as a last resort or desperate move. There are plenty of partnership options besides mergers and acquisitions, including affiliations that allow a smaller hospital to leverage a larger hospital’s purchasing power, facilities and physicians. Management relationships are another option where an expert third party takes over day-to-day hospital operations and provides the independent hospital with economies of scale. In cases where it’s necessary to identify a partner to support a hospital’s long-term sustainability, waiting too long to start the process can put the hospital at a serious disadvantage.

How should hospitals manage COVID-19 relief funding?

JK: Tracking government funding is critical. CHC has helped hospitals apply for government funding and track all data to ensure they gain access to all the funds they are eligible for and monitor how they use them. Whether in the form of a CARES Act grant, a PPP loan or some other type of funding, these outlays must be properly managed and restricted in use. In certain cases, the federal government requires hospitals to document the use of funds. For example, for CARES Act payments, hospitals must provide quarterly attestations that funds are used for COVID-related costs and COVID-related loss of revenue. In any case, CHC recommends that hospitals set up a tracking system to account for these funds. Lastly, while federal aid related to COVID-19 can certainly be welcome and positive, federal relief could mask some of the financial challenges for smaller independent hospitals.

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