All treatment needs a great team but when the survival of the hospital is at stake and your cash flow takes a steep dip, you need financial leadership first. As far back as 2015, Dr Norman Swan was asking if Australian Hospitals could be saved. But now, the spread of the coronavirus has deepened the healthcare cost crisis. In Australia, as a temporary measure to deal with demand disruption, federal and state governments have agreed to treat public patients in private hospitals. On the upside, this has bolstered finances for private hospitals, but on the downside, it has impacted their lucrative elective surgery stream of income. In the private sector, it’s the physician that brings patients to hospitals.
Notwithstanding federal and state government efforts to shore up supplies, hospitals and clinics are still facing shortages and huge increases in costs. With rising costs and falling incomes hospitals are battling negative cash flows.
Ankur Agarwal and his co-authors from McKinsey have offered a well-considered pathway for CFOs. They suggest that the CFO can take steps across three horizons:
- Immediate safety and survival.
- Near term stabilisation.
- Longer-term recovery.
Immediate safety and survival
For immediate safety and survival, we must corral our internal resources. For the three decades that I have worked in hospitals, the hidden hazard with recurring costs has been waste. Waste is incurred in many forms. In this article I focus on two root causes:
This could be slated to the CFO’s valance for expensing costs to user departments immediately goods are delivered to the hospital. As a result, these costs are effectively treated as sunk costs. The Western Australia Auditor General suggested that these costs can be recovered by using suitable track and trace technology.
Putting this in context, material costs account for the second-largest recurring expense category in hospitals and is now likely to become the largest account category even before manpower costs.
If hospitals use to track and trace technology it will become obvious that tracking materials and moveable assets are only the tips of the iceberg. Other chronic conditions can also be treated:
- Automated data capture at the point of care.
- Automated procedure costing.
- Automating information throughout the reprocessing process.
- Providing visibility throughout the OR.
- Access control.
- Way-finding in and outside the hospital.
- Migration of legacy systems.
- Integration into patient management systems.
Does it make sense to buy well only to lose a large part of what you’ve bough? If you are a hospital CFO I’d love to hear thoughts about this.
Software costs, like untracked materials, bleed the hospital’s cash reserves. With the coronavirus crisis when non-patient contact services are forced to work off-site, hospitals must move to cloud computing. Bernard Golden says, ‘the key thing to understand about cloud computing is that it substitutes automation for manual effort. Instead of doling out work to a system administrator, who then manually completes the task and makes the resource available, cloud computing uses resource APIs and an orchestration engine to drive the same task. Therein lies the genius of cloud computing.’
Dave McComb, who writes about semantics in computing systems and data-centricity, in his book, ‘The Data-Centric Revolution: Restoring Sanity to Enterprise Information Systems‘, says that we’ve reached a turning point in the way we manage enterprise information. The amount of data is doubling each year, but our ability to use it is decreasing.
McComb suggests in his book, ‘Software Wasteland: How the Application-Centric Mindset is Hobbling our Enterprises’, that this is a mindset problem. This is not a technology problem. Werner Vogels, VP & CTO of Amazon has shown that new-age companies have moved to more affordable options.
The coronavirus crisis emphasises how rapidly the world is changing and the importance for CTOs to find ways to help their hospitals respond appropriately so that they can move onto near term stabilisation.
Near term stabilisation
Once the hospital’s response to the initial crisis has stabilised. The CFO can help facilitate near term stabilisation with the support of the CTO. As Sven Blumberg and his co-authors from McKinsey say, a skilful [CTO] can not only cut current IT costs but can also help position the company for recovery and future growth. The four areas that can be looked at in the near term are:
- Shifting customers and suppliers to online channels.
- Use flexible cloud services to transform legacy solutions.
- Focus on business process and workflow automation especially in supportive services and EMR.
- Provide secure remote-working capability at scale.
Once near term stabilisation has been implemented. The CFO and the whole management team can turn to longer-term recovery.
James Clear, the author of ‘Atomic Habits: An Easy Proven Way to Build New Habits and Break Bad Ones’, calls the period between starting something and seeing good results the ‘valley of disappointment’. Indications are that with COVID-19 interventions we will pass through such disappointment. However, if we stick the course we will have the ability to gain longer-term recovery.
As Toby Hall, one of Australia’s leading providers of public and private hospitals pointed out in his opinion piece fewer hospitals will exist along traditional lines. The emphasis of healthcare will be to provide primary and ambulatory care in localised clinics and the comfort of people’s homes. Hospitals will become different places only providing highly specialised care. Demand disruption with COVID-19 is accelerating this trend.
As Ankur Agarwal and his co-authors say this is the ideal moment for CFOs to boost productivity through digitisation and reallocate resources for growth, realign the [hospital] portfolio through acquisitions and divestiture and boost productivity.