Many of the biggest challenges facing the healthcare sector have been nodded at, poked at and studied by esteemed panels in recent years. Still, little action has occurred to fix systemic issues related to squeezed budgets, staffing shortages and an unforgiving surge in service demand. The reasons why are entrenched and complex, but the time is now for organizations to face their operational difficulties head-on with a new mindset to embrace change.
Healthcare currently accounts for more than 18% of U.S. GDP; by 2030, it’s expected to reach 30%. There is no turning away from the necessity of tackling the inefficiencies and obstacles that keep the industry from meeting expectations both in financial management and in the delivery of care to patients.
The urgencies of the COVID-19 pandemic put most new operational ideas and advances on hold. That devastating period exposed systemic vulnerabilities in our healthcare systems not only related to care delivery but also weak (and often opaque) financial underpinnings of those organizations.
Pandemic-era government funding enabled healthcare organizations to limp along at the time (and afterward) by covering shortfalls they encountered in the moment. Institutions were able temporarily to spend pretty much whatever it took to fill nursing vacancies with traveling staff. PPP loans, employee retention tax credits and other incentives helped mute the pain of declining revenues and keep operations at a minimally functional level.
But with the end of those programs, and consumer demand for service unrelentingly high, it’s impossible to understate how generally ill-equipped the healthcare system is today to tackle the host of challenges they face. The balance between the growing needs of patients in an aging population and the iron-clad restrictions of the prospective payment system in which reimbursements are based on a predetermined, fixed amount that invariably falls far below actual costs is, to put it bluntly, massively out of whack.
Managing people and tech tools
Tackling the complexities of the healthcare system in 2024 requires organizations to take a thoughtful and unflinching look at their approach to managing the people who work for them and the technology tools that can help them better understand and navigate their specific circumstances.
Overhauling the staffing and technology paradigms is essential for all major healthcare categories:
- Acute care and outpatient clinics and other community health centers
- Senior living and skilled nursing facilities
Staffing costs are up and there is very little ability to change revenue streams to pay for them. Negotiating with commercial payers is difficult and Medicare and Medicaid reimbursements are essentially locked.
The immediate response by healthcare organizations in recent years has been to cut costs by laying off nonessential staff, middle management and other administrative positions. The idea was that eliminating those positions freed up dollars for patient-facing areas.
But now many organizations are facing a staffing crisis. The layoffs and restructuring got them through an immediate crisis period, but they struggle with the “Where do we go from here?” question.
A key answer is increased automation and AI. Automation is coming throughout the industry, but it needs to be handled in a careful and methodical way to succeed. Healthcare and senior living organizations can’t just jump at the next intriguing sales pitch and assume that buying that product will solve their problems.
Organizations need to prepare for automation by getting their foundational operations well organized and in place This includes data infrastructure, management and governance. They need well-functioning software systems to be the engine for automation, covering electronic health records, ERP financial software and their CRM as it relates to patient management. By investing in foundational work, they’ll be far better equipped to adopt automation tools that make sense for their organization.
Capital spending is less likely to center on new or repurposing facilities (high interest rates and economic uncertainties continue to fuel the mounting caution) and more on how automation can lead to greater efficiencies in clinical and back-office operations. It’s simply not the right time to build more medical offices, hospitals or senior living facilities when staffing remains a seemingly intractable issue.
Because the majority of hospitals are nonprofits, their access to low-cost debt means they benefited from favorable loan rates and are able to manage costs better than other sectors for any new construction or expansion they have done in recent years for their facilities. This has mostly insulated them from another pending threat — interest rate resets that are coming due in a high-rate environment. This puts them in a comparably stronger financial position than for-profit organizations.
For larger hospitals that acquired smaller ones in the years before the COVID-19 pandemic, they may not have put their energy and attention into streamlining their financial systems. And indeed, each building may be using its own holdover system that doesn’t communicate with the others. It may be impossible to get a handle on total spending, how much revenue is coming in or whether billing is being handled and posted correctly when an institution is operating with multiple systems.
Senior living organizations
Their financial challenges can be steep. The vast majority are for-profit entities, and so on top of any high-interest loans they have to manage, they had the high-stress COVID-19 period to work through. Many went under or were sold during that period and some emerged, but with very weak financials. Commercial financing resets are now likely to be adding significant new pressures. Expect to see continued financial distress, restructurings, bankruptcies and more sales and consolidation in the senior living space.
The financial distress may mean fewer beds on top of staffing challenges. In many aeras, there are simply not enough spots in senior living to meet the growing demand, especially in rural and other less densely populated areas.
By investing in the right financial software, many organizations may be able to manage with fewer staff than they had before and also focus in more discerning ways on how they manage their different business units.
Finding fresh solutions
So, the arrival of standardization around financial systems and provider contracts is an important goal for all players in healthcare. The result is that organizations will have easy access to metrics they haven’t been able to see before.
The same thinking applies on the clinical side. What’s the point of an X-ray or CT machine producing stats that don’t communicate with any other parts of the institution? Developing a plan that incorporates integrated, efficient technologies that support business and clinical processes is an important step in building a stable future. Those organizations that can’t commit to that journey and make those investments are less likely to survive.
Medical “deserts” with the most acute shortages of facilities and providers may be the first to embrace process automation in a big way because they have no choice. Telehealth medicine may be the only option in some medical fields. There may well be government incentives to encourage broader use of EHRs.
Still, developing the right culture in a workplace will continue to matter. Even in a struggling sector like skilled nursing facilities, an organization that can be hyper-attentive to job applicants and show them they care about staff from the first point of contact is on its way to excelling in staff retention. When a candidate inquires about a job, reach out to them right away and learn specifically what kind of work they can do and be as flexible as possible with their schedules. Those who continue to show they care about employees will be much more likely to keep them over the long haul.
There is no choice that the healthcare business models of the past and how care is delivered must change. The old ways are no longer sustainable. Making smart investments in technology and people to work toward that end will pay off, but it won’t be an easy journey.
How Wipfli can help
Are you ready to tackle your organizational challenges? Wipfli can help. From digital transformation to strategic planning to talent optimization, we help healthcare organizations navigate change and come out strong. Learn how to get started.
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