On Christmas Eve 2008, at the height of the Great Recession, Rich Miller was called into an all-hands-on-deck meeting of Northwell Health’s top executives.
Before they could head out to slice the ham at their family gatherings, leaders had to sign off on a number of reductions and other operational decisions amid the crushing economic downturn.
“They basically pulled the team together to make sure that everybody understood the challenge in front of us and to make sure we’re all rowing the same direction in terms of the actions we would take to respond to it,” said Miller, who was vice president of financial planning in 2008, but is now the not-for-profit health system’s chief business strategy officer.
Miller doesn’t foresee being in that position again. The New Hyde Park, N.Y.-based not-for-profit health system is seeing strong patient volumes and the areas it serves boast low unemployment rates. And while predictions abound, he said Northwell’s top brass doesn’t see evidence of a recession in the near future.
Nonetheless, some health system leaders and industry experts say now is precisely the time to formulate and implement plans for weathering the next inevitable economic downturn, whether it lands in 2020 or beyond. That can include modeling how much damage various economic scenarios would inflict upon specific organizations and what areas of the budget may need to be trimmed or, on the other end of the spectrum, protected at all costs.
For their part, Northwell’s leaders plan to discuss the potential for a recession at their February finance committee meeting, including what the magnitude could be and how the health system, which reported $11.5 billion in operating revenue in 2018, would respond.
They can draw on their experiences from a decade ago. Back in 2008, Northwell’s patient-care volumes were suffering amid the downturn, so the team had to cut back on capital and supply expenses, Miller said. During their February meeting, the finance team will assess which 2020 capital projects would be first on the chopping block if a recession hit. Miller declined to name specific contenders.
“Obviously ones that hadn’t begun yet would be ones that would be first looked at,” he said. “If you’re in the middle of a project, it’s a lot harder to stop than if you haven’t started it.”
Altamonte Springs, Fla.-based AdventHealth has tied its capital spending to its operating earnings: Since 2001, 75% of its earnings before interest, taxes, depreciation and amortization have been dedicated to capital spending, said Paul Rathbun, chief financial officer of the not-for-profit health system.
That means a decline in investment returns prompted by an economic downturn wouldn’t prompt the system to lower its capital spending. During the 2008 recession, however, AdventHealth did lower that ratio from 75% to 70% amid uncertainty over debt issuance and bank lending, Rathbun said.
“We weathered through that, the markets recovered, things got more back to normal and we went back to our 75% model in 2015,” he said.
An economic downturn would not necessarily mean lowering that ratio again, as AdventHealth’s balance sheet has strengthened over the past decade, Rathbun said.
Health systems are already very familiar with cost-cutting work outside of economic downturns. For its part, AdventHealth, whose revenue approached $11 billion last year, has kicked off a companywide assessment to learn how its overhead compares with its peers, and whether it is justified or not. The goal is to complete the project by mid-2020 and determine next steps after that. On the supply-chain side, the health system has saved more than $225 million over the past few years through negotiated price reductions using a systemwide approach, he said.
“We don’t just do it from the corporate offices,” he said. “We get everybody involved.”