Healthcare Midyear Update: Permanent Changes for Providers
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The COVID-19 pandemic put the healthcare industry front and center. Along with being on the front lines of managing the crisis itself, providers had to pivot and innovate when it came to delivering other important services, such as treatment for mental health and chronic conditions. What also became clear is that some emerging trends were suddenly thrust into high gear.
There was an abrupt shift, for example, from delivering non-COVID-related care in outpatient settings instead of hospitals. Simply put, people didn’t want to go to hospitals for routine care during the pandemic, opting instead to delay elective surgeries and procedures. Many people also embraced technologies that had previously struggled to gain traction, like telemedicine. The technology has been around for more than a decade, but the pandemic supercharged its momentum, resulting in a major shift in care settings from hospitals and physicians’ offices to patients’ homes.
There's also a broader generational shift happening. For the most part, baby boomers are the ones seeking treatment for chronic conditions. But millennials, those roughly aged 25 to 40, are not interested in the hospital being the setting for healthcare, generally speaking. That transition was already in the works, but it was similarly amplified last year as everyone else found themselves seeking alternatives to in-person care.
That shift has had a significant impact on physician groups. They couldn't see patients directly, and while telehealth was an option, that cut into their reimbursement income. Meanwhile, they still had to pay for personal protective equipment, or PPE, for their staffs.
That’s why we expect consolidation to continue as physician groups shift to multispecialty practices and incorporate additional services—including therapies and labs—to integrated vertically and increase profitability. Consolidation could also lead to more innovation as the creation of larger health systems can create the scale to spread costs across locations. The combination of telehealth and electronic health records, or EHRs, represents a shift to a more digital-focused industry. EHRs, however, historically have suffered from underinvestment. The hope is that with consolidation, we'll see greater adoption of digitized health records.
Potential pitfalls
Right now, the industry is still high on CARES Act payments. Across all care settings, declining profits— from cancellations of elective procedures to PPE expenses—have been masked by the stimulus money that has flowed in. Getting off the stimulus high will likely be the biggest challenge for the industry. Those funds won’t be around in a few months, and the system’s long-term structural problems—such as payment models—will be in the forefront again.
Another risk is the desire to reset operating models and growth strategies back to what was being done in February 2020. Doing this just delays the inevitable when the best way forward is to embrace the changes that the pandemic accelerated. Don't just focus on baby boomers, for example. Instead, start paying attention to millennials and how they're going to engage with healthcare. Something as seemingly basic as incorporating technology that simplifies appointment scheduling can have a great impact.
Ultimately, it means meeting patients where they want to be met, whether it’s in a physician group facility for checkups or through virtual visits. Some call it the consumerism of healthcare or a patient-centric delivery model. While individual practitioners have historically been client-focused, that hasn’t always been the case for the industry as a whole; it pivoted during the pandemic out of necessity. But that shift needs to be permanent because the demand for the patient-centric model is more than likely here to stay.
If you don't, younger generations will be more likely to get their healthcare from a system that’s more nimble. Essentially, it’s taking the mindset that the changes you made in the past year to adapt to the pandemic weren’t short-term fixes but an evolution of your business model.
Developing a model for the future
Providers are not likely to have another year like 2020. But some organizations are using their financials from 2019 as a predictor of future performance. As a banker working across several segments within this industry, I can tell you that no financial institution is going to view your 2019 or 2020 performance as a benchmark for how your business will perform for the rest of 2021 and beyond. Last year was an anomaly. And while 2019 may seem like the most recent “normal” year to measure against, many of the changes the industry has seen over the past 15 months will be permanent shifts.
The trick is figuring out the ongoing model that will suggest long-term survival. The changes accelerated by the pandemic are not likely to go away, so your current state is not comparable to your previous performance. The only way to determine your financing needs for your strategic plans—whether it’s an acquisition of technology investment—is by figuring out what your new model looks like.
There are plenty of challenges ahead, but for the most part, we see most providers ending 2021 better than they started. As vaccinations have rolled out and society begins to open up again, patients are seeking out services that they put off during the pandemic. As long as we continue on that trajectory and avoid any major setbacks, providers should be happier at the end of the year than they were at the beginning.
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Imran Javaid
Managing Director, Healthcare Finance Group
Mr. Javaid offers nearly 25 years of investment, finance, and management experience with a variety of institutions both public and private. For the past 20 years,...(..)
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