As COVID-19 wreaks physical and financial havoc around the world, its stories of pain and suffering on the micro level are weaving their way into our daily discourse. Whether or not you agree with the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the package offers, among other things, some financial relief to hospitals and doctors who are unsure of their finances in the near term. COVID-19 has placed an obvious financial burden on businesses, both large and small. The pandemic is also foisting an inordinate amount of financial pain on hospitals and health systems as their first responders, emergency rooms, and clinicians struggle to balance day-to-day patient care with the triage of COVID patients and those who are “COVID suspect.”
While it seems untoward, maybe even dirty, to contemplate business right now, some consideration is essential to ensuring that our hospitals and clinicians can withstand the ongoing financial disruption and are at least marginally financially ready, when the dust settles, to continue with “normal” patient care. Surely no one would argue that permanent hospital and clinic closures due to COVID-19 would benefit our country’s healthcare delivery model. Already, hospitals and medical practices of all sizes are struggling mightily. Well-known and long-established healthcare “brands,” including Henry Ford, Trinity, and the Medical University of South Carolina, have recently announced that they are furloughing staff.
While it’s no long-term solution, during these bumpy economic times, triaging the line items that build profit and loss statements (P&L) makes all the sense in the world. Health systems (and their employed clinicians) and private practices should discuss with their advisors the possible application of CARES to provide expense mitigation during these challenging and unprecedented times.
Applicants should make sure that they have quality legal and CPA counsel who are well-versed in this financial Band-Aid. The devil is certainly in the granular details since the dollars tied to CARES are a loan, but portions of the loan may be forgiven owing to certain criteria. The loan can be used not only to assist in staffing cost mitigation but also to help with rent and other costs. While this article is not the venue to dig into the details of CARES, the financial package may provide a glimmer of hope in otherwise challenging times.
Clinicians are struggling with both the revenue and the expense sides of their P&Ls. For the most part, CARES does not address the revenue component. The Paycheck Protection Program (PPP), via CARES, is offering $350 billion in “forgivable loans” that can be applied for via the Small Business Administration (SBA) and deployed to cover payroll, rent, and utility obligations, to name a few items. Additionally, CARES provides tax benefits and other financial tools (detailed discussion is beyond the scope of this piece).
On the revenue side of the P&L, deploying telehealth services (re: who can do what, and when, where, and how they are reimbursed) can positively impact revenue as on-site patient visits dwindle (acknowledging the fact that, in many specialties, telehealth is not optimal/ideal). Optimizing scheduling and deploying a strong telehealth outreach program can temporarily keep care moving forward while possibly opening up longer-term delivery modalities for clinics. Also, commercial insurers (United Healthcare, Blue Cross/Blue Shield, Cigna, etc.) have taken strides to work with physicians on the reimbursement side of the ledger.
Since I’m one to deploy simple, numerically round (absurd) examples to make a point, Figure 1 below considers a medical clinic before COVID-19 (e.g., during normal business operations), during the pandemic, and after obtaining a CARES loan via the SBA.
COVID-19 & CARES
Before the onslaught of COVID-19, the clinic generated $100 of revenue from commercial insurers and Medicare/Medicaid (Column 1) per month. Their total expenses were $80, leaving $20 in profit each month. Then, COVID-19 ran rampant, crushing revenues. While the expense architecture remained the same, the practice found itself upside-down to the tune of $50 (Column 2). The clinic then furloughed and/or fired staff and managed to reduce its “Misc. Other” costs by $7; however, it was still upside-down $23 (Column 3). After consulting with its trusted advisors – who were up to speed on CARES – the clinic participated in the program, which meant retaining staff and mitigating staffing expenses. (Column 4 shows $35 contributed via CARES, which covered $35 in staffing expenses.) The cash injection via CARES plus an aggressive telehealth program (see my April 2, 2020, article at Forbes.com titled COVID-19 and Telehealth: Crisis Drives Flexibility and Expands Care) provided a financial lifeboat for the clinic. While CARES did not make the practice whole, the expanded revenue options and expense mitigation combined helped to keep the clinic afloat.
Obvious caveats to this article are as follows:
a. The model/figure above is overly simplistic (by design),
b. CARES is not intended to make clinics profitable,
c. CARES money won’t be injected into the “Expense” side of the P&L (as displayed in Figure 1), and
d. CARES requires thoughtful contemplation by well-informed advisors.
One size never fits all, but it is instructive and beneficial for health systems and clinic management to consider CARES and how they can positively impact their P&Ls and stave off potentially unrecoverable financial disrepair. The details are still emerging, but clinicians should seek able counsel to determine the value/benefits of working via CARES.