How Physician Practices Can Weather the COVID-19 Storm
The COVID-19 pandemic presents numerous challenges for private physician practices, especially:
- Declines in revenue.
- Operations restructuring management.
- Navigating potential opportunities.
While no strategy can obviate the impact of this pandemic, recognizing each practice’s unique circumstances and developing a careful plan of action can at least mitigate the long-term impact. Furthermore, fully leveraging government stimulus programs can make a real difference between liquidity and financial distress.
Declines in Revenue
As the pandemic expands, private physician practices face significant financial and operational challenges— first and foremost is revenue loss. To flatten the infection rate and reduce exposure, practices must limit both procedures/surgeries and non-critical patient visits. Many practices are seeing reductions of 40% to 60%. For most practices, particularly specialties like orthopedics and ophthalmology, revenue declines come from reduced volume. The CDC has issued guidance for the postponement of elective and non-invasive procedures. Patients, especially the elderly, have become reluctant to seek routine physician care, leading to visit cancellations. Furthermore, primary care practices face a flood of (unreimbursed) calls regarding COVID-19 symptoms. Seeing such patients puts demands on practice supplies and generates anxiety among clinical and administrative staff. Together, these reductions in revenue place significant financial stress on practices. Thus, it becomes critical to obtain a clear financial projection of the coming months and develop a thoughtful plan of modifications to provider schedules and expenses as well as to leverage financial resources, such as lines of credit, salary reductions, and/or government programs.
Practices face difficult choices in managing expenses with patient volumes falling. There may be a surfeit of staff for the reduced volume. Therefore, short-term staffing reductions may become necessary. Conversely, there is a risk of personnel shortages due to exposure, illness and the required self-quarantine. In addition, patient visits related to potential COVID-19 require processes and protocols to safely perform patient intake and allow for safe waiting rooms. This adds significant work hours and further stretches available and appropriate staffing that may lead to increased staff absenteeism and burn-out. Setting appropriate standards and making painful short-term decisions about employment, terminations or furloughs will be required.
Maintaining adequate inventory of medical supplies and protective gear has become a major challenge. The diagnosis and treatment of potential COVID-19 patients have greatly depleted current stock and generated extreme delays in the restocking of key supplies, especially personal protective equipment (PPE), such as gloves, masks, gowns, goggles and face shields. High demand and low supplies drive up costs. Managing both the levels and costs of staffing and supplies reinforces the imperative of creating a clear financial plan, covering months, as the timeline seems only to be expanding.
Physician practices traditionally have focused on in-person patient scenarios. But the dynamics of COVID-19 prompt a need for converting at least some visits to virtual ones. This has required practices to invest—with limited revenue—on infrastructure, secure telehealth platforms, and related hardware and software. Fortunately, the CMMS (Medicare) has loosened many prior restrictions on telehealth to facilitate patient care, while maintaining social distancing. Nevertheless, practices require time and training to understand telemedicine functionality and the subsequent coding, documentation and billing of telemedicine visits in order to obtain reimbursement from their participating payers. In addition to this shift in technology, the government is offering means to mitigate financial distress for providers.
The March 27 Coronavirus Aid, Relief, and Economic Security (CARES) Act offers a combination of initiatives and funding for practices, with billions of dollars earmarked for providers. Examples of these funding streams include:
- Paycheck Protection Program (PPP) via the Small Business Administration (SBA):
- A federal loan program to help small businesses continue operations and keep employees on the payroll as well as covering mortgages, rents and utilities.
- Practices eligible for such loans are also potentially eligible for forgiveness.
- Economic Injury Disaster Loan (EIDL0s) where businesses can receive up to $2 million at a 3.75% interest rate with a 30-year term.
- Medicare Advanced Payment Program provides up to three months of guaranteed revenues based on historical billings.
- Other programs:
- Enhanced Unemployment Benefits, both extended timelines and higher benefits.
- Tax payment extensions.
- Support for costs of COVID-19 testing.
How Business Advisory Specialists Can Help
An experienced team of health care business advisors can provide realistic projections of activity and the resulting revenue as well as frame-out cost reductions. In addition, they can advise on best practices in utilizing telehealth. Equally critical, they can assist in planning for cash flow maintenance by leveraging access to credit, government programs, and prudent compensation planning. A trusted business advisor can strategically plan with a client for the long-term viability of a physician practice by concentrating on:
- Financial projections/cash flow planning:
- Model likely revenue declines.
- Project required changes in staffing, compensation, scheduling, partner cash draw/deferral.
- Operations re-engineering:
- Target staffing levels and furlough plans.
- Remote planning for revenue cycle management.
- Collaborations on purchasing.
- Properly leveraging government stimulus programs.
- Operationalizing telemedicine.
With the juxtaposition of increasing patient need due to COVID-19 and the likely need to cut costs, it is more imperative than ever for physician practices to reach out to their business advisors to develop sound financial and operational strategies going forward.
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