Healthcare Year in Review: Cost cutting enters overdrive
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2020: The Year in Review
December 12, 2020 01:00 AM

Year in Review: Cost cutting enters overdrive

Tara Bannow
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    The COVID-19 pandemic hit at a time when many health systems were doing well financially or heading in the right direction thanks to years of disciplined efforts to offload debt or squeeze savings from consummated mergers. Then in March, they watched their revenue go over a cliff after being forced to suspend elective procedures.

    Throughout the crisis, the health systems that have fared the best were able to swiftly and effectively trim expenses, the only lever at their disposal once volumes flatlined. In that respect, for-profit HCA Healthcare was the poster child, having managed to slash expenses by almost 17% in the quarter ended June 30. Aggressive, even radical cost cutting, while far from a new phenomenon, was the name of the game in 2020. Hospitals were suddenly forced to examine all aspects of their operations, from underutilized operating rooms to real estate, to find something, anything, to trim. In addition to savings from buying less supplies for procedures, hospitals sharpened their ability to quickly adjust the lever on their biggest line-item expense: labor.

    For its part, for-profit Tenet Healthcare Corp. trimmed its salary, wage and benefit expenses by 13% in the quarter ended June 30, in part by using algorithms to ramp up and down staffing capacity as needed. Tenet’s ambulatory surgery subsidiary flexed down hours by about 65% when the pandemic hit. Most importantly, Tenet said the changes the company made to its cost structure during the pandemic are permanent.

    Finance spotlight: new HFMA billing guidance

    The Healthcare Financial Management Association released updated guidance in September aimed at improving healthcare providers’ billing and collection practices in an effort to lessen the impact on disadvantaged patients. The organization encouraged providers to consider whether they’re suing people of color at disproportionately high rates. It also recommended administrators report to their boards the rate at which they’re using extraordinary collection activities like lawsuits or credit reporting. During a year in which patients continue to suffer from surprise bills and crushing medical debt, HFMA’s leadership on this crucial topic is much needed, experts said.

    3 Big Events

    The healthcare industry distress index soars: The measure of healthcare bankruptcy filings on a trailing four-quarter basis hit 510 in the second quarter of 2020, compared with a 68.5 overall Chapter 11 distress index, according to law firm Polsinelli. The healthcare index jumped by more than 276 points since the first quarter of 2020, when an abrupt spike in COVID-19 cases likely paused bankruptcy filings. The overall Chapter 11 index rose 14 points from the previous quarter.

    Texas COPAs approved: Texas regulators approved a pair of hospital deals under a certificate of public advantage law that the federal government warned would raise costs and lower quality for the communities they serve, but might inspire other states to adopt the model.

    End of eras: Wayne Smith announced he’s stepping down as CEO of Community Health Systems on Jan. 1 after more than 20 years at the helm. Similarly, Universal Health Services CEO Alan Miller said he’ll step down in January 2021, with his son, Marc Miller, stepping into the top job. The incoming CEOs of both CHS and UHS cautioned not to expect big changes under their watches.

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