Advisory Board wanted to understand how providers' strategic priorities, volume outlooks, and capital spending plans have changed in light of Covid-19. Our Strategic and Business Planning team surveyed 83 strategic planners to learn their thoughts. But what do these survey results mean for the future of health care facilities? We sat down with Colin Gelbaugh to dig into the results.
One of the biggest things that stood out to me that changed from the last time we surveyed planners last year was the decreased appetite for reducing capacity. Why do you think that is?
Colin Gelbaugh: In May of 2020 when we administered our first survey, very few hospitals had seen a Covid-19 surge. By February of 2021, nearly all hospitals experienced a surge. So, I think that certainly played into the change of heart.
I think what planners really want is flexibility – to scale up their capacity when needed, use beds for a variety of purposes. Having that added capacity adds minimal costs when those features are not needed.
The government aid helped a lot across the board. Providers have high fixed costs and need regular cash flows to stay afloat. Last year, with liquidity issues up in the air, providers may have been considering more drastic cost cutting actions that they didn't actually want to take but felt that they might need to take given their cash position.
On the ambulatory side of things, there were dramatic levels of care avoidance in May of 2020 with no end to the pandemic in sight. Now, volumes have started to bounce back, and finances aren't as strained.
The story is different for community hospitals. Our survey revealed that they have had the slowest return of patient care revenue across all organization types. So, they had to take more cost cutting actions compared to others to remain financially sustainable.
Community hospitals are less diversified across markets and revenue sources, are often more reliant on governmental payers (that pay less) and can often be located in areas where population growth isn't as robust. All of these factors, coupled with low patient volumes from the pandemic and higher expenses, likely explain the results.
How does this desire to maintain inpatient capacity square with the continued shift of procedures out of the hospital?
Gelbaugh: There is continued movement of surgeries from inpatient to hospital outpatient and hospital outpatient to surgery centers, but the surgeries most likely to shift are also those that don't require lengthy inpatient stays. In other words, the surgeries with the most movement might not be occupying a lot of bed days currently.
Provider financial outlook: Continued volume recovery—but modest gains in margins and huge variability across the board
Medical patients are often the ones that are occupying a lot of bed days. And while other models such as Hospital at Home are aiming to divert these patients away from the hospital, currently these programs are small in scale. There are many issues that need to be worked through, most notably long-term reimbursement models, before there will be material penetration in the market, and the resulting decrease in bed needs.
There is also a view among hospital planners that future demographics point to increased need for hospitals. Baby Boomers will fully age into Medicare by the end of the decade. The population is becoming older. But planners are not ignoring the writing on the wall. They know there is and will continue to be pressure to shift care to outpatient settings, and they are focusing future investments in this area to capture that growth.
In the report, you detailed how volumes are, or are not, recovering at different sites of care. What were some of the most surprising data points you found about volume recovery?
Gelbaugh: Respondents expect to recover nearly all procedures that were postponed due to Covid-19 – 84% believe they will eventually recover 100% of procedures that were postponed. This is surprising because we haven't seen a huge boon in surgical volume nationwide – yet. If hospitals are going to recover all postponed procedures in addition to returning to their normal pipeline, then you'd expect surgical volume to exceed 2019 baselines at some time.
One thing that stood out to me was the number of respondents that say ED volumes will never recover—27% say overall ED volumes will not ever recover and 37% say low-acuity ED volumes will never recover.
I think respondents are reacting to the fact that ED volumes have consistently been down by 15-25% for over a year, and other options such as telehealth have become more popular. I do think that much of the ED avoidance has to do with patients opting for other settings due to perceiving the hospital as less safe, and that some of these volumes will eventually return as people are vaccinated.
Also, society is kicking back into gear – people are traveling, going to group gatherings, doing sports – so accidents and trauma will come back, non-Covid-19 respiratory illnesses will come back. The low-acuity volume may be lost forever, but we still need to see what happens with telehealth regulation and reimbursement, and also see how long-term consumer behaviors change.
Finally, there seems to be some confusion about the future of urgent care centers. 18% said volume would never come back, while 37% said volume had already come back (the highest across all visit types tested). Given the high number of people saying volume had already come back, we think the possibility of volumes never coming back may be overstated.
How do you think the backlog of surgical procedures will affect the demand for ASCs?
Gelbaugh: For those surgeries that can be done in an ASC, I think there is the potential for a demand boost, especially if hospital OR capacity is strained.
After long surgery delays, there will likely be patient desire for who can perform the surgery the fastest. If that is an ASC, they may be able to capture volume that would otherwise be done in a hospital.
Did the survey reveal anything about the types of facilities that providers will prioritize with CapEx budgets?
Gelbaugh: New ambulatory care facilities ranked No. 2 in capex priorities, behind IT and digital health technologies—70% say they will increase investment in this space. Only 26% say they plan to increase investment in new inpatient facilities. Many more (50%) plan to increase capex for repairs, renovations, and maintenance.
Though, we also found that overall capex investments won't change by much – 75% say they will change their capex investments by only +/- 10% in the next year.
In a research report we published in November 2020, we explained that health care leaders found their facilities were not as flexible as they had intended. Organizations could not rapidly scale capacity, limit contact between Covid-19 and non-Covid-19 patients, or effectively isolate patients.
We predicted that, given their experiences in responding to Covid-19, provider organizations want their facilities to be more resilient—flexible, accessible, and equipped to handle emergencies. It seems your survey results align with this prediction, with 50 percent of all respondents saying they would increase spending on repairs, renovations, and maintenance in the year ahead. Do you agree with our logic as to why this area ranked so highly? Or do you believe there is another underlying reason?
Gelbaugh: I think that makes sense. Flexible capacity allows for scaled services and adds minimal operating costs when not in use.
Planners have to now figure out what facility adaptations will be necessary (and expected) in the post-Covid-19 world. What should they do with waiting rooms? Should they separate sick and non-sick patients? What should they do with administrative office space? Should they allow some of their employees to work remotely permanently? What adjustments need to be made to accommodate more digital interactions? These are all questions they need to work through.
What else do you think facility firms need to know?
Gelbaugh: Don't underestimate the importance of digital going forward. It might be easy to say digital is not relevant to facilities as it feels like the opposite of physical space. But there are a lot of implications of digital in how providers think about their physical spaces.
How are rooms best designed, how do space needs change or not. Digital was the number on strategic and capital priority, and so I think facility firms need to embrace it and lead on it. Providers will undoubtedly ask how digital changes their facility plans, even if the answer is, it doesn't.