As hospitals face an economic downturn, leaders must think strategically

Health systems face financial losses and staff shortages. KPMG’s Kristin Pothier spoke with the Chief Healthcare Executive about managing in times of economic uncertainty.

Hospitals and healthcare systems no longer need financial strain, but they could face more headwinds.

With the possibility of a recession, or at least greater economic volatility, it will be more important than ever for hospital leaders to think strategically, said Kristin Pothier, global head, business consulting in the health care and life sciences at KPMG.

Pothier spoke with health director on the challenges ahead and what hospital leaders should consider.

“As a health care system, you have to think short term and long term,” Pothier said.

Many healthcare leaders are preparing for a recession. KPMG recently polled business leaders on their thoughts on a possible recession. About three in four (77%) healthcare and life sciences executives believe the odds of the US entering a recession in the next 12 months are greater than 50%.

Some healthcare leaders don’t necessarily think this will be a short recession. Nearly half (47%) of healthcare executives surveyed said they believed a recession would last longer than a year.

“With COVID, the last two years they have been stretched. They had to take care of their covid patients,” Pothier said of hospitals and health systems. “They are also facing massive staff shortages as staff have either fallen ill or are tired of working.”

Hospitals have already had a difficult year financially, with some systems recording substantial losses. Hospitals could be having their toughest financial year in a long time, Erik Swanson, senior vice president of data and analytics at Kaufman Hall, said late last month.

With hospitals experiencing higher labor and supply costs and uncertain revenues, Pothier said hospitals need to look to rationalize their costs. She said hospital leaders should ask, “Where’s the biggest cost bloat you have?”

Focus on talent

While hospitals and health systems could face more cost pressures, leaders need to invest in their people, Pothier said. Given the staffing shortages they are experiencing, hospitals cannot afford to lose more talent.

“Really look at who you hire and how you can keep them better if they’re strong,” Pothier said.

Hospital leaders should talk to their staff and ask them what they need, she said.

Pothier said leaders should ask their teams, “How are the staff feeling? What are they upset about? Are they unhappy with working too hard? Too many hours? Not enough flexible time? »

If nurses are doing too many tasks on top of their duties, and it’s a common frustration among nurses, smart leaders will find a way to transfer some tasks to other tasks, she said.

“When you look at all the jobs a nurse will do, does he or she have to do all of those jobs?”

“Be creative in staffing,” Pothier said.

Hospitals should also use technology to reduce the workload of their staff, including telehealth or automation. Health systems might consider “adding anything that can ease the pressure on the staff you have,” Pothier said.

Hospitals should look to do more automation in labs, which could help systems avoid losing more medical technicians, “and they’re scarce to begin with.”

While hospitals need to watch spending, they may also need to invest in technology to keep pace with rivals, Pothier suggested.

Customers have higher expectations and are more likely to shop for health systems, she said.

“The pace of innovation is such that patients can choose where they go,” Pothier said. “They choose to go to the most innovative center, the center that has at least on looks, the best care, the best technology.”

“It’s competitive between health systems,” she said.

Impact on mergers

The economic slowdown and the prospect of a recession could impact hospital mergers and acquisitions. The number of hospital mergers and acquisitions remains lower than in previous years, and the pace of deals may not increase in the near term, Pothier said.

Increasingly, she says, it’s likely that cash-strapped hospitals will seek to form partnerships with companies that can help them in specific areas where they seek to expand their services, such as telemedicine or mental health services, Pothier said.

Hospital leaders may find it more desirable to partner with a company or supplier instead of investing heavily in a service they currently lack.

In the first six months of the year, 25 hospital consolidations were announced, which would essentially match the 49 deals seen in 2021, a quiet year for hospital deals, according to Kaufman Hall. As a reminder, there were 79 hospital groups in 2020.

Although there have been fewer mergers, the hospital industry is seeing more transactions. Trinity Health has just completed the acquisition of MercyOne in Iowa. Atrium Health and Advocate Aurora have announced plans to merge and form a $27 billion system. If approved by regulators, the Atrium-Advocate Aurora deal could spur more mergers of large hospital systems, analysts say.

Some financially faltering hospitals may need to merge with other health systems to stay afloat, some analysts say. While Pothier said the slowdown could cause smaller systems to merge, she said it wouldn’t necessarily be easy.

“Even our largest health systems have significant cost issues,” Pothier said.

If America sees a recession that continues for an extended period, health care systems will experience more challenges.

In a long recession, some providers might see fewer patients scheduled for cosmetic surgery, Pothier said.

At the same time, a recession could lead to more health problems for Americans, whether related to stress or substance use.

“Patients are still getting sick. Patients sometimes get sick because of what they’re going through at home,” Pothier said.

If unemployment rises, more Americans could visit hospitals or health care systems without private insurance.

Life sciences

Leaders in life sciences exude more optimism than those who run hospitals and healthcare systems, KPMG reported.

In its survey, 80% of life science executives said they expect year-over-year revenue growth in 2022. Conversely, 41% of healthcare executives expect a decline in revenue in 2022. About two in three life sciences executives (65%) said they have an appetite for merger activity.

Over the past two years, some life sciences companies have been pumping up “covid cash,” as Pothier called it, and moving quickly to acquire companies they find attractive. In a time of economic uncertainty, Pothier said some of these companies may be looking more critically at some of these recent acquisitions.

As Pothier put it, some companies might be looking to “divest from businesses that don’t make sense,” she said. “Let’s focus on streamlining the portfolio when some of that cash disappears.”

Life sciences companies also have an advantage over hospitals and healthcare systems: they don’t face a shortage of critical talent. But that’s not to say life sciences companies have it too easy when it comes to talent acquisition, Pothier said.

Companies don’t just pay to recruit talent. They are increasingly offering desired candidates the option of working remotely, she said.

“The talent war is still real,” Pothier said. “It’s very different from health care. There are plenty of people to fill the roles. It’s just very competitive.

Comments are closed.