Author Sean Lara, Managing Director of Business Development

For healthcare leaders across the country, the early spring headlines have made for uneasy reading:

  • “Nation’s Hospitals Losing About $50B A Month Fighting Pandemic” (1)
  • “COVID-19 Pushes Median Hospital Operating Margins Down 150%” (2)
  • “Hospitals Struggle to Restart Lucrative Elective Care After Coronavirus Shutdowns” (3)

Yet even this steady drumbeat of sobering data points doesn’t adequately capture the scale of COVID-19’s impact in healthcare. To fully appreciate the magnitude of the situation, it helps to step back and consider the larger picture, though the result is no less disquieting. According to the U.S. Bureau of Economic Analysis, reduced spending on healthcare made up nearly half of the 1.2% quarter-on-quarter decline in GDP in the first three months of 2020 (4). Healthcare — so often the poster child of “recession-proof” economic resiliency — is at a crossroads.

Though the pandemic will likely drive broad and dramatic changes across the industry, one obvious focal point will be the administrative complexity associated with the revenue cycle. Long a performance improvement target, the hospital revenue cycle has benefited tremendously from the admirable work of operational leaders and frontline staff over the last two decades. But, even prior to COVID-19, investments in still better performance were yielding diminishing returns. Key metrics like A/R days and cost to collect were all stagnating or worsening well before the opening blows of the coronavirus shock. Revenue cycle leaders face the unenviable challenge of having to continue these efforts amidst the ongoing uncertainty of a once-in-a-generation global crisis.

It is against this backdrop that revenue cycle leaders must choose a strategic direction. Military historians often note that “generals are always ready to fight the last war.” As conditions, tactics, and technology change, this human tendency to prepare for the past results in missed opportunities at best, spectacular failures at worst. Thoughtful operators must consider three critical questions as they plot a path forward.

#1) How Do I Develop Staffing Flexibility To Accommodate Ongoing Volatility & Uncertainty?

Revenue cycle leaders will continue to face unpredictable work volumes across the next 12 to 18 months as patients and procedures return in waves. These surges will likely be interrupted by localized outbreaks of the virus as social distancing guidelines ease. Longer term, we may continue to cycle between the “hammer” (lockdowns) and the “dance” (gradual attempts at normalcy) until viable treatments or a vaccine are discovered(5) For reference, the fastest path from the collection of viral samples to an approved vaccine was for the mumps — a process that took four years (6).

Given this volatile environment, traditional staffing approaches will invariably leave revenue cycle organizations either understaffed or overstaffed. To meet the moment, leaders will need to think critically about where to deploy staff versus where to implement technology. Automation and Artificial Intelligence (AI) are obvious candidates for the latter category; leveraging both will be critical in order to quickly scale output up or down as conditions demand (to say nothing of freeing human talent to focus on the most complex and valuable tasks).

#2) How Do I “Harden” Operations To Ensure Business Continuity During Crisis Events?

Leaders everywhere are adapting their organizations to make them far more robust when faced with crisis events like COVID-19. Caught unprepared by the current pandemic, many are now focused on proactively securing tools and resources that can perform continuously regardless of external shocks. This approach isn’t simply about preserving productivity; in a crisis, operators should be devoting their attention to the larger problem, not scrambling to keep the lights on.

Robots manufacturing widgets in a factory may leap to mind when we talk about automation, but today’s healthcare revenue cycle is both more complex and more dynamic. Put more simply: it’s hard, and it’s always changing. True automation provides an operational fail-safe during a crisis, not another problem to manage.

#3) How Do I Mitigate Financial Risk For My Health System By Fundamentally Restructuring My Operating Costs?

As the ranks of unemployed Americans approaches 40M (at this writing), health systems are preparing for a significant (and likely unfavorable) shift in payer mix. As of May 2020, the self-pay payer mix has increased by 8.4% nationally(7). This transformation of the reimbursement landscape will accelerate the collapse of the commercial insurance cross-subsidy and intensify existing efforts to not simply reduce, but dramatically restructure operating costs. Attempts to stave off hard decisions using either investment income (which made up nearly half of hospital net margin over the last two years (8) or M&A will be, at the very least, more complicated and fragile than in recent memory. Healthcare leaders must address their operational inefficiencies, and quickly.

Again, automation and AI hold great promise for the hospital revenue cycle, but only if vendors can deliver flexible and robust automation based on shared value. Too often, hospitals and health systems have found themselves investing in technology based on delivery of the product versus delivery of the promised outcome. Don’t buy the bot, buy the result.

Automation Hype

Savvy readers will greet Automation and AI with raised eyebrows, and with good reason. According to Google Trends, the term “artificial intelligence” hit peak popularity in late January 2018, and the healthcare industry is now awash with vendors who have effectively reduced AI to a marketing buzzword.

Though the temptation to write off these technologies as hype can be strong, it must be resisted. Healthcare and revenue cycle leaders are climbing the educational curve regarding automation, AI, and machine learning, but they also have one (perhaps surprising) ace to play when faced with hype vs. reality: last mover advantage. Healthcare is a notoriously slow adopter, and while this characteristic is often cited as an industry weakness, it can be a strength.

We can learn from the mistakes of our out-of-industry brethren (and sistren!), especially when it comes to the early iterations of automation. Older technologies like robotic process automation (RPA) have been pushed beyond their intended capabilities, resulting in inflexible and brittle automation that is hard to scale and expensive to maintain.

A Final Word

At the end of the day, healthcare’s greatest enemy isn’t overhyped technology. It’s organizational inertia. In some ways, this tendency to wait makes sense. But in a world experiencing rapid, significant, and lasting change, doing nothing starts to look paralytic instead of conservative. We absolutely need human talent, and we need humans focused on the highest-value work. But we also need to remember that progress has always been driven by people embracing new tools that expand and extend our capabilities, whether that tool is a dusty bicycle or the latest tablet. We ignore these tools at our peril.

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Sources

1 https://www.aha.org/news/headline/2020-05-05-report-nations-hospitals-losing-about-50b-month-fighting-pandemic

2 https://www.modernhealthcare.com/finance/covid-19-sinks-hospital-operating-margins

3 https://www.nytimes.com/2020/05/09/health/hospitals-coronavirus-reopening.html

4 https://www.beckershospitalreview.com/finance/drop-in-healthcare-spending-major-driver-of-gdp-decline-report-finds.html

5 https://www.nytimes.com/2020/04/21/learning/lesson-of-the-day-the-daily-the-next-year-of-the-pandemic.html

6 https://www.nationalgeographic.com/science/2020/04/why-coronavirus-vaccine-could-take-way-longer-than-a-year/

7 https://www.crowe.com/-/media/Crowe/LLP/Widen-Media-Files-Folder/h/Hospital-volumes-hit-unprecedented-lows-HC2003-044A.pdf?la=enUS&modified=20200430214218&hash=B7FA8AF457E36ED70EFDFA031D56BC224D7BE110

8 https://www.beckershospitalreview.com/finance/investment-income-made-up-almost-50-of-hospitals-net-margin-in-past-2-years.html

Sean Lara is Managing Director of Business Development at Alpha Health.