Finance administrators at healthcare providers will continue to cut costs as they navigate the fiscal uncertainty wrought by COVID-19, according to a new survey.
Ninety-five percent of finance administrators said their organizations were likely to roll out cost-saving initiatives, according to a mid- to late-May Bain & Co. poll of 441 front-line healthcare workers. Equipment and supplies purchases were the primary target, followed by increasing physician awareness of costs and renegotiating contracts.
“Finance administrators are pulling hard on a set of procurement levers, whether that’s on med-tech purchases, pharmaceuticals, supplies or physician-preference items,” said Michael Brookshire, a partner with Bain & Co.’s healthcare practice and co-author of the report, adding that they are also looking at reducing hours, bonuses and hourly compensation for frontline staff, executives and administrative support teams. “The longer that providers are dealing with depressed volumes and revenues, the more they are trying to redesign their operating models.”
The pandemic may also spur merger and acquisition talks, according to the survey. Nearly three-quarters of independent primary care physician practices said they would be open to be acquired over the next two years, preferably by a large or small physician-owned practice.
Meanwhile, regulators will be on the lookout for predatory consolidation, particularly if some of the federal grant money is used to help large, well-resourced companies buy up smaller ones that were weakened by the crisis.
“We’ll see a lot more pressure on physician groups, which typically haven’t had large cash balances like health systems,” Brookshire said. “Those looking at 20% to 30% revenue declines may be unsustainable for many physician groups, even with cost cutting.”
Pension plans present an often-overlooked cost-cutting option, said John Lowell, partner and actuary at October Three, an actuarial firm specializing in retirement plans.
Hospitals can freeze a pension fund, preventing any accruals or new participants to 401(k)s, 403(b)s or other retirement plans. Many have stopped any matching contributions amid the pandemic, which can provide immediate cost savings, Lowell said. They can also try to renegotiate the fees firms charge to manage retirement plans, which can yield 25% savings, he said.
Hospitals typically make their contributions at least quarterly. If providers contribute a month early, they can get a 4.5% return on investment, Lowell said. Although, that may be harder for cash-strapped organizations, he noted.
Another option for some employees on the lower end of the pay scale is to roll over pension benefits to an IRA to maintain-tax deferred status or have them cash out in a lump sum, which would negate Pension Benefit Guaranty Corporation premiums, Lowell said.
“Many CFOs who have been working at hospitals for the last 30 years think first about how to increase revenue, deal with insurers, treat patients who can’t pay and operate more efficiently,” he said. “For most hospitals that still have legacy pensions, those are often the single largest unmonitored liability they have.”
An organization’s fiscal solvency is an increasingly important element of caregivers’ career considerations post-COVID-19, according to the survey. Before COVID-19, only 27% of respondents said financial stability of the employer was a key criteria in their next career move. That rose to 44% after the pandemic.
In the near term, adequate levels of supplies and tests are paramount. As healthcare organizations gear up to incrementally reopen, frontline caregivers have expressed concerns about access to protective equipment and testing. Nearly 60% of physicians polled said their organizations are completely equipped for the return of elective procedures, compared to around 45% a month ago.
Although states have begun to loosen restrictions on non-urgent procedures, surgeons only expect around 60% of their full procedure volume to return by June and 75% by September.