How Hospital, Healthcare Supply Chain Leaders Should Respond
The CARES Act distribution, which is on track to provide $175 billion to healthcare, provides a vital lifeline for hospitals navigating the short- and long-term impacts of the COVID-19 crisis. For many hospitals, the financial situation has never been more dire, and the stakes have never been higher.
A recent report by Kaufman Hall found that hospitals’ median operating EBITDA margins fell more than 100% in March, with revenues 13% lower than the same period last year. That financial fallout is likely to continue for many months, with the American Hospital Association recently forecasting that hospitals’ total COVID-19-related losses will reach more than $200 billion between March 1 and June 30.
I have been watching the CARES Act developments closely over the past few weeks, and I have been considering what the funds could mean for hospitals, and how they should apply them. Here are three of my biggest takeaways:
1. Enhancing patient care and protecting staff members’ jobs should be the top priority
While all hospitals must evaluate their individual needs, challenges, and priorities when determining how to use CARES Act funds, efforts to enhance patient care and recover financially and retain staff members should jump to the top of the list for all hospitals.
The good news is that HHS recognizes there are many ways hospitals can meet these objectives, and it has given hospitals a lot of freedom regarding how they use the CARES Act funds.
In general, HHS requires only that hospitals use the funds to prevent, prepare for, and respond to COVID-19, and that the payment shall reimburse providers only for healthcare related expenses or lost revenues that are attributable to COVID-19 (such as the treatment of uninsured COVID-19 patients). COVID-19-related FEMA reimbursement may also be available to your hospital.
2. When evaluating specific approaches for improving patient safety, enhancing the supply chain must be a key consideration
COVID-19 underscored how interconnected the hospital supply chain is with patient safety and patient care. The PPE shortage, for example, made it difficult for hospitals to stop the virus from spreading to non-COVID patients and staff members. As of April 9, more than 9,000 healthcare workers had tested positive for the virus, according to the CDC.
A more resilient, flexible, and proactive supply chain—one that is supported by AI-based algorithms and demand-forecasting capabilities—will help hospitals better prepare for the next significant supply chain disruption (i.e., by proactively monitoring for disruption events and automatically replenishing key items).
While a significant disruption—such as a natural disaster, labor strike, or other event—could occur at any time, hospitals are almost certain to encounter a second wave of COVID-19 patients in the next few months. Anthony Fauci, MD, Director of the National Institute of Allergy and Infectious Diseases, has already warned that this could happen as soon as this fall.
3. Hospitals must also consider how CARES Act funds can be used to improve revenue
An optimized supply chain improves patient safety, but it also leads to revenue gains, according to numerous studies. A recent Guidehouse analysis, for example, found that the average hospital can reduce its annual expenses by 22.6%, or $12.1 million, simply by tightening up the supply chain.
This is a highly critical benefit of supply chain optimization that all hospitals must consider as they evaluate how to allocate CARES Act funds. As noted, they are experiencing a significant revenue hit due to the pandemic, and the OR has been hit particularly hard. Over the next few months, the financial fallout will continue, as many patients and surgeons will continue to delay or cancel elective surgeries or opt to have them performed elsewhere.
In addition, OR throughput will remain below normal levels, due to new guidelines and recommendations from organizations such as the CDC and the American Society of Anesthesiologists. For example, new intubation recommendations for COVID-19 positive or suspicious asymptomatic patients state that physicians and other staff should remain outside the OR for 18 minutes following intubation.
A more optimized supply chain can help hospitals counteract lost revenue and decreased throughput by improving OR efficiency and driving down costs, particularly costs associated with physician preference items (PPIs).
Since surgical supply usage typically constitutes 40-60% of a hospital’s total supply cost (excluding medications), supply chain management solutions that help hospitals and surgeons identify opportunities to use lower-cost items, while maintaining quality patient outcomes, can result in huge cost savings.
In this together
I recognize that the past few months, and the months to come, will be some of the most challenging your hospital has ever faced. I hope that the CARES Act funds can help ease some of the burden, and lead to enhanced patient safety. Please reach out if there’s any way that we can help support your efforts. We’re here to support you in any way that we can.