Healthcare’s Front Line—and New Bottom Line

May 11, 2020
3 Minute Read

In one of the pandemic’s biggest ironies, more hospitals than ever find themselves on the brink of bankruptcy—at the same time demand for healthcare is spiking. Improving healthcare’s data integration could be the fastest and easiest way path to solvency.

For healthcare workers on the frontline of the COVID-19 pandemic, it’s the least the public can do to show their deep appreciation for a job well done under extraordinary circumstances. But that circle of appreciation needs to be expanded. Especially to those playing a significant behind-the-scenes role—the hospital administrators trying to keep open the very same places where our healthcare heroes work.

In one of the pandemic’s biggest ironies, more hospitals than ever find themselves on the brink of bankruptcy—at the same time demand for healthcare is spiking.

According to a Boston Consulting Group study, 20% of healthcare capacity was already facing “near-term financial insolvency” before the pandemic. With many hospitals now cancelling revenue-generating elective procedures, that number will likely climb—significantly. The federal government’s stimulus package will help, but for many hospitals, the widening gap between expenses and revenue will translate into budget cuts, layoffs and, quite possibly, Chapter 11. Rural America will be especially hard hit, with more than 800 hospitals already facing financial difficulties before COVID-19.

If ever there was a time when “cash is king,” this is it. It’s especially true for hospitals and healthcare systems, which are overwhelmingly privately-held (meaning they can’t raise cash through equities markets). They also have extremely thin margins and pay practically all their bills—you guessed it—in cash.

But in our experience working with numerous healthcare clients, there’s not enough attention paid to one area where healthcare organizations can improve cash flow. With relatively minor data investments, they could optimize the revenue cycle process by reducing claims denial rates.

A few quick case studies of how it can work:

  • One of the country’s largest post-acute care systems used IT improvements in claims denials management, revenue cycles, and more effective vendor management to improve the bottom line by some $30M over a period of a few years. That was cash they previously left on the table. Now it’s helping cover rising expenses.
  • One of the largest national physician networks improved its cash collections by $3M within one year by improving process, people, systems and data to streamline their claims-to-cash process.
  • A major healthcare system which recently invested over $1B for an electronic health record software implementation, conducted a separate data analysis to identify inefficiencies and transaction risks in their claims submissions and billing processes. This thorough but low-cost analysis ultimately helped them reduce their cost-to-collect by a significant 20% making cash collection easier and more cost-efficient.

These solutions for healthcare providers were often long underway before the pandemic hit, just not fully implemented. With COVID-19 now making cash flow practically an existential threat—spelling the difference between solvency or bankruptcy for a significant number of providers—improving healthcare’s data integration is more urgent than ever as perhaps the fastest and easiest way path to solvency.

Simply put, there’s a lot of cash in those 0s and 1s. But time may be running out for some providers. As healthcare’s new financial realities become clearer, our experience is that the sooner investments are made on the front end, the sooner the hospitals can improve their financial solvency to get through COVID-19 as well as be on better financial footing for the post-pandemic world.

Finally, the next time you applaud first responders, give an extra clap or two to those behind the scenes trying to keep healthcare institutions solvent. They may not be dealing directly with patients, but they are trying to keep a roof over the heads of those who are. They need our support, too.

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Joni Noel

SVP, RGP Healthcare & Private Equity
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