Which Hospitals Will Survive the Pandemic?

Hospitals and doctors have seen significant portions of their revenue dry up as non-essential, elective procedures are appropriately halted amid the coronavirus pandemic. However, oftentimes elective procedures are sources of profit that help a hospital cover fixed costs, subsidize other unprofitable service lines and otherwise stay out of the red.

Fear not, demand for elective procedures is unlikely to disappear over the longer term. When the coronavirus pandemic is contained, plenty of patients will be looking to re-book or schedule their elective procedures. 

However, in the near term, the disruption will be substantial. The longer hospitals have to defer revenue generating procedures, the more red ink they will face. These next few months are critical for a hospital or health system. A facility’s ability to manage through the pandemic will inform whether they are around to eventually deliver those non-essential services in the future and how quickly they can ramp back up and return to normal.

Access the Carevoyance Hospital Financial Health scorecard at https://covid19.carevoyance.com/

Razor thin margins 

While procedure volumes plummet, hospital administrators are working hard to manage fixed costs such as staffing and operating expenses. Some hospitals have turned to pay cuts, reductions in hours, furloughs or even lay-offs for non-essential employees. Certainly a focus on cost-cutting will also impact a hospital's ability to invest in capital equipment and other strategic investments.

While revenues from elective procedures are evaporating (or at the very least stalled for the next several months), certain expenses simply can’t be avoided. However hard administrators try to reign in costs, hospitals still need to keep their doors open in service of their communities. 

Here at Carevoyance we focus on supporting commercial teams who sell products and services to hospitals and doctors.

As healthcare sales executives are sitting on the sidelines given the lockdowns, and facing certainty of what their businesses look-like going forward, many sellers are spending time assessing their markets or territories to understand how their hospital clients and prospects may be impacted by the pandemic. In addition, given an estimated 50%+ of physicians are employed by hospital and health systems, the fortunes of individual doctors and medical groups are tightly linked to their affiliated facilities.

Assessing COVID's impact on a hospital's financial wellbeing

A number of factors may impact which hospitals survive the coronavirus crisis and which ones struggle to keep delivering care to their communities. In addition, how quickly a hospital can bounce back to a more recognizable state of normalcy once restrictions are eventually loosened will depend not only on how intense the demand for their emergency services during crisis but how financially healthy and stable the facility was prior to the pandemic.

We’ve spent years mastering the process of collecting, aggregating, cleaning and synthesizing disparate data sets from around the healthcare system. We’ve helped many commercial teams analyze these aggregated data sets in order to more easily identify, prioritize and engage with healthcare providers. With the coronavirus pandemic changing the day-to-day for many of our clients, we identified an opportunity to help our clients better understand what is going on at the local market level, due to the crisis.

We've built this free web-tool that allows users to assess a variety of relevant criteria to a hospital’s financial well-being, given the current impact of the coronavirus pandemic in that hospital’s local community.

Assess the impact of COVID-19 on hospital finances

Impact Score

The Covid-19 Impact score, calculated by Carevoyance, weighs a couple of important factors to give a quick assessment of how the pandemic may influence a hospital's ability to financially weather the crisis. 

Our Covid-19 Impact score brings together two important pieces of data taken from publicly available sources: (1) impact of coronavirus infections and (2) the financial stability of our hospitals.

First we calculate t​he impact the coronavirus is having on a county level. We divide the number of deaths in the county due to COVID-19 by the total number of ICU beds available in the county. 

Next we assess a profitability  of any given hospital. We multiply the days of cash on hand by the operating margin to get a financial health score. 

The Covid-19 Impact score is the impact of coronavirus divided by the financial health score. The higher the resulting score, the more likely the hospital may be adversely affected by the pandemic. Higher scores could be the result of realizing a bigger impact from the virus (i.e. a larger numerator) or the result of the hospital being in poorer financial health going into the crisis (i.e. a lower denominator).

You can use the interactive tool to drill down to a specific county to see the Covid-19 Impact score for an individual hospital.

Updated Daily

Our Carevoyance Hospital Financial Health scorecard is refreshed daily with confirmed cases and deaths. In addition the Covid-19 Impact Score is re-calculated daily to reflect the latest data.

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Data reported in the Carevoyance Hospital Financial Health scorecard

While the underlying data sources are freely available, the challenge arises in bringing the data together and figuring out how to draw actionable conclusions from it.

(1) Covid-19 infections and deaths

In our COVID impact tracker, we access both confirmed cases by state and county and deaths by state and county are accessed from a public site with daily updates.

We also provide a normalized view of the ICU beds available in the state or county by dividing the geography by 100,000 people to get a sense of how many vital resources are available to the local community.

ICU bed counts are published in the Medicare Cost reports that hospitals must submit to CMS on an annual basis if they want to participate in the Medicare fee-for-service insurance program.  Some hospitals have filed their 2019 cost report, while the majority have only submitted data from 2018.

(2) Financial measures

We access data about a hospital's financial status from the Medicare Cost Report. While this data is often aged, it is a great source of information to understand how financially stable and well run a facility has been in the past.

​Some hospitals are owned by corporations that are publicly traded (like CHS, HCA, etc) and make available detailed information about the aggregate performance of a collection of facilities that may span the entire United states. Most other hospitals are privately owned; other than the Medicare Cost Reports, it can be challenging to find useful financial information about the hospital.

The operating margin measures how much profit a company makes on a dollar of sales, after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax.  Margin helps us understand if a business can fund its operations while having anything left over for replacement, expansion or investment in a number of strategic initiatives.

How is Operating Margin calculated?

​The margin is calculated by dividing Total Operating Revenue, which is the revenue generated from a company's primary business activities, by Total Operating Expense, which are the expenses that a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory costs, marketing, payroll, insurance, step costs, and funds allocated for research and development.)​​

Days cash on hand is the number of days that an organization can continue to pay its operating expenses, given the amount of cash available. ​This metric ignores the cash flow generated from a hospital's day-to-day activities (i.e. procedures, inpatient cases and other delivery of care) and simply calculates how long a hospital could cover it's normal expenses with the cash already in it's bank account.

As we have seen during the pandemic, hospitals are cutting expenses like payroll by furloughing employees or reducing hours. These actions would allow the hospital to operate longer with the cash already on hand.

How is Days Cash on Hand calculated?
 Starting with the total cash last report, we divide operating expenses from the income statement (which would reflect salaries, rent, and utilities), after subtracting out all non-cash expenses (usually depreciation and amortization). Finally we divide by 365 to determine the amount of cash outflow per day.

Net working capital is used to measure the short-term liquidity of a business. Said another way, this financial metric indicates the ability for a business to pay its bills.  Hospitals with lower networking capital may be under more pressure to meet payroll, stock up on inventory or invest in technologies. They may feel more pressure to negotiate on prices or may be more receptive to discounts, bundling and other sales and promotions. 

How is Net Working Capital calculated?
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​Net working capital is the aggregate amount of all current assets and current liabilities.

Debt-to-net assets is a leverage ratio that defines the total amount of debt relative to assets. It measures the  proportion of a company’s assets that are financed by debt. The higher the ratio, the higher the degree of leverage and, consequently, financial risk. When hospitals rely too heavily on debt to fund operations, growth, or strategic initiatives, banks or other lenders may deem the hospital undesirable to lend to in the future or may only do so at potentially unfavorable terms or at lower amounts that what the hospital needs.

How is Debt-to-net assets calculated?
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Debt-to-net assets  is the amount of long term debt divided by equity.

 We also include a a few operational metrics such as Average Length of Stay, ICU average daily census and HCAPHS score. These metrics give you a sense of how the hospital turns over patients and the degree of satisfaction their patients report back when surveyed.

How are the Operational Metrics calculated?
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• • Average length of stay refers to the average number of days that patients spend in hospital. It is generally measured by dividing the total number of days stayed by all inpatients during a year by the number of admissions or discharges.
  • ICU average daily census is  the  average number of patients per day in the ICU over a year.
  HCAHPS score (Hospital Consumer Assessment of Healthcare Providers and Systems) is summary star rating is the average of the star ratings of the 10 topic-specific HCAHPS measures. 

Assess Impact of COVID-19

A benefit for all during the crisis

We are happy to make available this hospital financial health scorecard during the coronavirus pandemic. We hope this insight will not only help our healthcare technology and services clients but also care providers and public health officials who are looking to better understand and compare how hospitals are positioned in the coming months.
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Carevoyance data advisors are available to discuss your unique data specifications and to see how we can partner during this time. We understand you or your team may benefit from customizing this scorecard to your needs.  Please reach out directly to set up time to meet.

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