Navigating to a post-COVID-19 financial reality in healthcare

Gauging your medical group’s success in the “new normal” begins by recognizing what the pre-COVID-19 world looked like for healthcare, according to Cindy Nyberg, chief financial officer and strategic planning consultant, Fulcrum Strategies, Raleigh, N.C.

Unemployment hovered around 3.5% and wage growth was somewhere around 3.9% to 4%, and the labor participation rate stood at 63.4% in February 2020. “It seems like it was a million years ago,” Nyberg said. “COVID immediately became a perfect financial storm.”

Quickly, doctors and administrators “experienced something we’ve never, ever experienced before: Empty schedules,” Nyberg added. The drops in visits and productivity meant pivoting to cashflow modeling to ensure practices could stay open, as well as furloughing staff, seeking out federal aid and following new safety protocols to protect patients and staff.

Where are we now?

Heading into 2021, Nyberg said it’s questionable to even suggest healthcare providers are in a “post-COVID world” yet, especially with spikes in infections and deaths across the country.

For business performance, the key to assessing your post-COVID-19 financial reality is to track against pre-pandemic levels, such as your February 2020 performance.

Figure 1. Example of tracking of year-to-date production variances

Nyberg recommends tracking year-to-date production variances (Figure 1) in terms of both visits and total revenues to get a better sense of how your recovery is going.

In one practice Nyberg works with, the doctors noticed that revenues were up despite visits trending down. One of the reasons why revenues rose was a clean-up effort on aging collection accounts and providers catching up on charts that needed to be closed for claim submittal.

While that scenario is good for the bottom line, Nyberg noted that having lower visit volumes means their recovery is flat as you look forward to new revenue. “We expected a big return,” she said, but the complications of the pandemic have slowed that effort.

Top challenges for 2021

Nyberg points to five primary financial challenges that started or evolved in 2020 that will be around for medical groups even as the pandemic winds down.

Payer mix changes due to unemployment

No matter what happens under the new administration in the White House in terms of further expansion of Affordable Care Act markets and/or Medicaid, there are likely to still be significantly higher numbers of patients who will shift onto Medicaid or exchange plans due to job losses. “For a lot of patients moving into the exchange plans, those exchange plans have higher deductibles and coinsurance,” Nyberg said.

To prepare for those effects, Nyberg suggests asking yourself these questions:

• Do you have a patient financial responsibility plan?
• Do you also have the technology available to make it easy for patients to pay their bills?
• Are you modeling for a change in revenue based on lower commercial insurance payment and higher numbers of government payments at lower rates?

Changes in payer reimbursement strategies

The shift toward value-based payment has seen many primary care practices move into accountable care organizations (ACOs) or clinically integrated networks (CINs) to participate in shared savings arrangements. The next step, Nyberg said, is those ACOs reaching out to cost-conscious specialists to participate, since many of the cost drivers for primary care are specialists. Specialists are also moving toward forming their own CINs, which will shift projections of their financial recovery as revenue changes.

One interesting model Nyberg has seen comes from Blue Cross Blue Shield of North Carolina, which promotes an “Accelerate to Value” program to encourage practices to join an ACO and move toward capitation. The BCBS program would keep payments at 2019 levels through 2021, but on the contingency that the practice remain independent, join an ACO by the end of 2020 and consider a capitation agreement effective Jan. 1, 2022.

Patient consumerism

While price transparency has been a major focus for hospital services, Nyberg said practice leaders should think ahead for a similar requirement to extend into ambulatory care in the future.

A good first step is paying close attention to provider quality ratings from payers. In one instance, Nyberg worked with a specialized pediatric provider that billed many Level 4 codes, which resulted in a poor cost rating from a payer. The practice and Nyberg had to go back to the managed care company to explain the higher rate of Level 4 codes to update the cost rating.

Telehealth

Virtual visits have been a lifeline for countless practices and patients, but the biggest question on telehealth, Nyberg asserted, is what reimbursement rates will look like after the public health emergency (PHE) ends and some of the emergency regulatory changes end with it. A significant decrease in payments for virtual visits may motivate more practices to push for as many in-person visits as possible, regardless of patient and provider sentiment regarding telemedicine.

Surprise billing legislation

While there was little movement on surprise billing legislation in 2020 as Congress reacted to the pandemic, Nyberg noted that it’s possible to still see some changes in 2021 if bipartisan support remains.

In particular, this would affect hospital-based physicians, such as anesthesiologists, radiologists and emergency physicians. “If your hospital is contracted with a managed care payer and you are out of network, depending upon the bill,” there would be a set reimbursement, Nyberg said.

Such legislation also would affect physicians providing services in the hospital in scenarios in which the hospital is in a patient’s network but the provider is out of network. “There are still a lot of unknowns,” Nyberg added.

Strategies for the coming year

• Invest time in strategic planning: Know what you want out of an initiative before starting. Run multiple scenarios to have backup plans.
• Track the right key performance indicators (KPIs): No matter what kind of dashboard(s) you use, easy access to comparative data is crucial, as is the ability to change reporting timeframes to compare numerous years.
• Cashflow modeling: A good starting-point template will include beginning cash balance, revenues, expenses, principal repayments, capital purchases, owner distributions, ending cash balance, cash balance from the general ledger and the difference. This approach can be helpful for practices in which owners may not see loan payments on the income statements they review, thus providing a full view of capital purchases, such as computers or infusion pumps.
• Determine cost of visits: Just because a lot of pricing in healthcare is set by Medicare or a commercial managed care contract is no excuse for not having a product or service-level understanding of cost to deliver care. “How are you going to ever be able to agree to a capitation agreement if you don't know how much that patient is going to cost you, if you don't know how much that disease state is going to cost you?” Nyberg said.
• Institute patient financial responsibility policies: “Nobody wants to talk to patients about money,” Nyberg admitted. “We want to pretend it’s not there.” As high-deductible plans increase, it becomes increasingly true that “the patients pay your paycheck.” She recommends having a written policy communicated to all employees to ensure all patients are treated the same in collections, and having clear objectives to determine whether to offer them hardship credits.
• Increase access to care with telehealth: Your physical facilities are fixed costs, so maximizing exam rooms is always a priority. As the pandemic continues and safety protocols dictate social distancing, offering telehealth visits with a provider working from a home office while the exam rooms are managed by another provider can help expand productivity while still limiting in-office exposure to some. As payers look to reduce ER visits, the expansion of access via telehealth has potential to get to more patients more quickly and avert a potential ER visit or admission stemming from delayed care.
• Leverage technology: Each new year will be another year of younger patients coming of age and expecting the types of technological solutions that they enjoy in other aspects of their lives. Some younger patients insist on finding practices that offer self-scheduling or other digital tools for their care experience, such as robust options in the patient portal for bill pay.