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Forecast of the Financial Impact on Health Systems

Health Industry Leaders Look Forward

Healthcare  |  June 10, 2020 6:00am  |  By Joel Lee

The consensus of the panel of the nation’s healthcare leaders predicted a sobering end-of-year financial picture. While revenue losses have been steep over the past quarter, the panel does not predict a dramatic recovery before December 31 with more than 28.5% predicting EOY 2020 revenues down by more than 15%. Another 23.8% saw revenue losses between 10% and 15% against CY 2019. So then, fully 51.3% predicted revenue shortfalls of more than 10%. These predictions are despite a national rise in revenues of nearly 12% in the first quarter of this year.  38.1% of the respondents thought revenue losses would be modest between 0% and 10%. And just over 9.5% forecast that revenues would increase slightly.

Congress and the Administration have played an active role in trying to blunt the impact of COVID-19 on the national economy and have included relief to hospitals in the early rounds of stimulus funding with more contemplated over the next few months. We asked for the panelist’s best guess on what share of hospital and health system revenue loss might be subsidized by federal grants when all the dust has settled. 52.4% of the respondents felt relief would cover less than half of the losses. Just under 24% thought the relief would cover between 50% and 75%. 19% thought the subsidy would cover between 75% and 90%.

Health systems are adjusting their spending to address revenue shortfalls. We asked the panel to prioritize five different approaches for cutting costs and rank them from best to worst. The lowest score represented the best option:

  • The best option (1.9 average score) is to refinance debt
  • Next at an average score of 2.25 is to defer construction projects
  • The third best option is to defer capital equipment purchases (score 2.8)
  • The fourth best option is to delay IT projects (3.6)
  • The least preferred option is to lay-off staff (4.29)

Finally, we wanted to look specifically at CAPEX spending and how these revenue shortfalls would influence capital spending in the next 12 months. Most of the panel (71.4%) forecast that capital budgets would go down but not as dramatically as margins. Just under 29% thought capital budgets would be reduced proportional to margin losses. Not a single respondent thought capital budgets would remain the same.