We’re continuing the summary of the Moody’s Investors Service report on integrated planning and financial viability. Last week we covered investments in off-campus sites while maintaining high-margin inpatient services.
Today we focus on the remaining components of integrated planning: digitalization, investment in talent and operational and funding flexibility.
Digitalization
Information technology investments will continue to expand digitalization. This focus includes:
- Data from electronic medical records to improve clinical outcomes and for predictive and preventive medicine
- Requirement to track value and risk-based contracts spurred by reimbursement shifts
- Data to spur innovation
- Comprehensive cybersecurity safeguards
Investment in Talent
Clinical staff will account for a growing portion of operating costs, particularly if the nursing and physician shortage continues. With a limited supply and rising cost of nurses and physicians, there will be a careful drive toward improving productivity and redesigning workflows.
Moody’s analysts noted, however, that “too strong an emphasis on productivity may increase the likelihood of clinician burnout, exposing the system to safety risks or lawsuits, or penalties under value-based reimbursement models.” Telehealth will become increasingly used as a cost-effective means of delivering care, and improving access and throughput, as opposed to staffing physicians 24/7, or paying on-call wages.
Operational Funding and Flexibility
Operational and funding flexibility in a changing healthcare environment, and the ability to grow or contract when needed, will be crucial to overall credit quality and financial sustainability, Moody’s noted in its report.
- Hospitals will need to evaluate service lines and divest those that are underperforming or not core to their long-term strategy to preserve margins and rationalize capital.
- The shift to outpatient care, combined with reimbursement challenges and increasing costs, will put pressure on margins and limit the ability of hospitals to increase cash reserves through operations.
- Hospitals with higher liquidity will be better able to manage volatility and adapt to evolving markets.
With respect to capital, the analysts offered the following points:
- Timing and scope of strategic capital deployment are key credit considerations.
- Phasing in large capital programs over time may provide flexibility to respond to unexpected shortfalls.
- Deferred capital on the other hand can put the organization at a competitive disadvantage.
- If not implemented appropriately, execution of simultaneous large-scale strategies will weaken credit quality.
- However, long-range financial plans and a demonstrated ability to execute and respond to market conditions will be crucial to maintaining a strong credit profile.
Summary
Analysts concluded that it pays to “remain nimble” when planning for change. Various tactics include:
- Commitment of the board to approve multi-year strategies
- Willingness to embark on various strategies without short-term returns on investment
- Ability to assess performance at various midpoints and change course
- Integrated long-term financial, capital and strategic planning
- Commitment to change skill set of management as strategies change
- Willingness to change the culture of the organization through growth or merger strategy
- Physician participation and buy-in
(From Flexibility, integrated planning key to the healthcare system of the future, Moody’s Investors Service Sector In-Depth, May 16, 2018. iProtean, now part of Veralon thanks Moody’s Investors Service for its permission to excerpt portions of this Sector In-Depth.)
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