COVID-19 Challenges and Rapid Recovery

TRANSCRIPT

MW 00:10 [music] Welcome to BRG’s ThinkSet podcast. I’m your host, Michael Whalen, a managing director with BRG. BRG is a global consulting firm. We help organizations in disputes and investigations, corporate finance, and performance improvement and advisory. We’re a multidisciplined group of experts, industry leaders, academics, data scientists, and professionals. Around the world, BRG delivers the inspired insights and practical strategies our clients need to stay ahead of what’s next. For more information about BRG, please visit thinkbrg.com.

In this special episode of the ThinkSet podcast, we’ll learn how two hospitals on the front line of COVID-19 are dealing with the pandemic. Ranga Krishnan, CEO of The Rush University System for Health, and Daniel DeBarba, executive vice president and CFO of Catholic Health Services of Long Island, join BRG President Tri MacDonald, and managing directors Paul Osborne and Mukesh Gangwal, from BRG’s Healthcare Performance Improvement practice. This recording is from a webinar BRG hosted in early May, and the first voice you’ll hear is Tri MacDonald’s.

TM 01:19 It’s with great pleasure that I’m going to turn the call over to Mukesh Gangwal and Paul Osborne, who will lead a panel discussion with some longtime friends, colleagues, and esteemed hospital executives, Ranga Krishnan from Rush University Medical System and then Daniel DeBarba from Catholic Health Services of Long Island. With that Mukesh and Paul, why don’t you take it off?

MG 01:42 Thank you, Tri. We’re facing some unprecedented times. The impact of COVID-19, apart from our day-to-day lives, the societal implications has had a huge impact on the healthcare industry, especially on healthcare systems. The average patient volume has declined by 55% between March and April. Now, what that is tantamount to is $200 billion loss of revenue for the healthcare systems. They have to essentially run 110% of capacity to recover from this huge loss. Now, we have Ranga Krishnan. Ranga became the second CEO of Rush University System for Health in May 2019. He previously was dean of Rush Medical College from October to May of 2019. Ranga, if you could please talk a little bit of the background for Rush in terms of your size, scope, and the impact COVID-19 is having to your institution. Ranga?

RK 02:49 Mukesh, thanks. A little bit about Rush, Rush System is three facilities, hospitals, 31 locations, and Rush Health Network with over 1,800 providers, physicians, and 140 additional locations. In 2011, Rush built a new hospital, and the hospital was actually built in case there was a pandemic or epidemic or some really bad disaster happened. It was built where literally every bed in the town can become an ICU bed, and you could also double the capacity of the entire hospital because the walls of the hospital were built with the kind of materials, oxygen, and all the different things that you need. So you open up the wall, and you can double the size of the entire enterprise. And it’s also got an unusual supply chain system in the sense that everything runs underground, and it’s actually built for cleaning facilities with special fluids which are collected into special banks and taken away, and there are robots that run around the place carrying supplies to keep the contamination level down. This was built the assumption was we would never have to use it, and it turns out that we got into the middle of it. And in January, February when I was—by the way, I’m based partly out of Singapore, and Singapore faced this in January. So I knew this is likely to come in this direction. I wasn’t certain, but we were talking about it. We established a command center very early on, and the command center started to plan for what can happen. And we started to essentially set up structures to manage in case we got big numbers of patients coming in and also have to have different pathways, manage supplies, manage staffing, provide the training, etc. So a bit ahead of most institutions in the planning.

RK 04:48 It helped us. We have some 238 patients with COVID-19 in the place along with the routine number of patients. We had doubled our ICU capacity. We have about 11 ECMO patients, which is probably the highest in the country at any one state. And we have also built probably more number of patients who come in and transfer. Roughly 20 to 25 percent of complex COVID-19 patients from the region come over to us. Our overall revenue for the hospital structure is about 2.6 million, and the network structure is about 2.9. So it’s a complex organizational structure. And like everybody else, all of our elective things are closed. And now, we’re getting ready for a recovery plan that we initiated just when we went into the command center. We also started to plan for how to come out of this.

MG 05:46 Thanks, Ranga. Paul, do you want to introduce, Dan?

PO 05:50 Yeah. Thanks, Mukesh. I wanted to introduce Dan DeBarba, who’s the CFO at Catholic Health Services Long Island. Dan has been a longtime client for BRG. Dan, can you just give us a kind of brief overview of Catholic Health Services?

DD 06:07 Our health system was founded about 25 years ago at six hospitals. One of them is St. Francis, very famous or well-known certainly in the New York region, cardiac hospital and the leading hospital we have in our health system. We also have three long-term care facilities, a very successful home care and hospice organization, and a special education and substance abuse organization as well. We are a $3 billion organization licensed for 1,900 beds, but we have just over 1,200 med-surg and maternity beds and another 250 psych, rehab, and detox. Through mid-April, we’ve had about 2,300 COVID patients. And each one of our six hospitals had more than 100, which made us eligible for part of a $12 billion distribution where money went out just this morning. And I’ll touch on that later in the presentation.

MG 07:09 So this question goes out to Ranga. In our earlier conversation, Ranga, you had mentioned that you’ve been the eye of the storm, the ground zero, for COVID-19 patients in Chicago and Illinois, handling something like 25% of the patients and probably the majority of the use of ventilators, etc. Typically, hospitals have proportionality of ER care and elective care. ER is down by about 40%, and then elective care is down by anywhere from 35 to 65 % in the market, which obviously changes the whole framework on how you provide care. How is your organization handling the clinical challenges due to the surge of COVID-19 patients and a very heavy reduction on the classic bread and butter patient and revenue throughput? And then in that context, how are you addressing operational challenges, which for the laypeople means the availability and the use of PPE, ventilators, social distancing, use of pulmonologists and emergency care physicians, etc.?

RK 08:22 Let me break into two parts what we do for COVID and how do we handle non-COVID. In our case, we screened or tested over 20,000 patients of COVID. 5,500 of them were positive. That’s a big number. We admitted 600 of them. And at one time, we’re operating 90 to 100 ICU beds with COVID. We had over 690 patients flow through with COVID through the system just in our main campus. What we had to do was essentially, as I said before, double up the size of ICU capacity, try to get all our ventilators back and working with about 190 of staff available and to make sure that we have the PPE supply well ahead of schedule, which as I said, fortunately, we were planning—we’re always just slightly ahead of our demand supply needs. The emergency room actually got really busy different from other institutions because of the COVID. Everything was coming through us. So we actually had to build out a separate ED to handle the non-COVID patients. Our ED was actually built to run in pods that were structured to be able to do these kind of things. And we were lucky again that it worked. In terms of surgery, which is infusions, etc., we’ve had the same drop that everybody has had. And much of it for the outpatient side, elective surgery in particular, has gone pretty much down to 70, 80 percent reductions because they are mandated. In other other words, even if you had the material, we couldn’t do those because there was a state and city mandate not wanting us to so that we could preserve the PPE and have the capacity for the patients coming in. In the recovery phase, we’re waiting to gradually open up. And this is again based on state mandates, and this is also different because some hospitals are in city and some are state.

RK 10:23 The biggest problem that we had, and also we had to maintain, was social distancing because hospitals are really not built for social distancing. So we had to figure out a different structure and actually bring in new technology to do it, which we were doing in 2019 more on an experimental basis. But we now have it completely widely deployed including testing people and texting people before they come in on a just-in-time basis. And then we have temperature screening in every entrance, which we started again way early in the epidemic, both for employees and patients, and then also to make sure that the employees feel comfortable that we have made available testing for them on a recurring basis as needed. A huge increase in testing capacity was very critical. Again, fortunately, we had a laboratory group and the equipment because of Abbott and others that we’re able to scale up pretty quickly.

PO 11:24 Thanks, Ranga. Next question is for Dan. As most people know, it’s a very difficult time for hospitals financially and operationally. What have been some of the biggest challenges that you have faced both from a financial perspective as well as operations, and what have you done or are you doing to address this?

DD 11:46 I’ll focus on the financial component, and I think I can touch on some of the operational pieces. But clearly, we’ve had decreased volume in many areas because of the canceled elective procedures. Unlike Rush, we have had significant reductions in emergency and observation care and I would even say delayed non-elective procedures. I can’t tell you how many stories we’ve had of physicians who believe that they’ve had patients who truly should have come to the hospital for something and chose not to because of fear for COVID. Physician visits nearly cut in half. So it’s been a really difficult time from a revenue perspective. Expense we’ve incurred, massive overtime, double time. We’ve brought in temporary staff. We have a lot of COVID patients. We’re paying out significant bonuses and other incentives to keep people motivated to the extent we can. PPE, the price has gone up dramatically, so we’ve spent a lot of money on that. We bought 40 ventilators. We were concerned that we just didn’t have enough, and the state wasn’t going to be able to help us. So that was rather costly. Testing equipment supplies, much like Rush, a lot of money spent in that area. And then as you can imagine, and as you probably read, the length of stay of COVID patients is extraordinary. And so pretty costly to care for these patients. We believe that this is costing us $25 million a week. Early on, the biggest problem from an operational standpoint was PPE. We solved that problem along the way. And then the focus became on ensuring that we had enough staff to care for the massive numbers of patients we had and creating capacity. I told you the size earlier of our hospital, about 1,200 beds. At one point, 75% of those beds were filled with COVID patients. From a longer-term perspective, the consumer fear of COVID is going to continue. So I think that we’re going to be challenged with volume for certainly the near term.

DD 13:42 We’re seeing a weakened patient financial profile. Folks who are insured who were insured yesterday are not today because they’re being laid off and the like. So I think that’s something that we need to deal with over the next year. I think the fact that we have mushrooming federal and state deficits is going to make any sustained relief improbable if not impossible. There are few certainties in health care. Reimbursement cuts in the next few years I think will be one of them. Demand for virtual care has grown and will continue. That genie is out of the bottle. But, of course, that pays less than the traditional service we’ve provided. So how are we dealing with that? We’re taking advantage of all forms of relief focusing on recapturing our demand ensuring that our physicians that are—I’m not talking about those physicians we employ but those who are affiliated with our health system. We still have many in private practice. Trying to help them get through this because they’re vulnerable right now. We want to ensure that a competing health system doesn’t pick up those positions and again recapturing our volume. We have to reduce our cost structure. There is no doubt about it. The clinical model is changing. So we’re going to taking a hard look at our cost structure yet again. We have learned that we can work remotely in many areas and be successful at it and get economies of scale that you just can’t get as an independent health system. So I think there’ll be more of that certainly from our health system. We will restructure our physician enterprise. We were already hemorrhaging to a certain extent with the losses on physicians. The demand for physician employment and partnership is going to grow and grow dramatically both now and in the next several months and years. And I think we’re going to look to partner more creatively whether that be with other hospital and health systems, physician groups, and other non-physician providers. We’ve learned very clearly that we can’t be all things to all people during crises like this.

DD 15:41 And we’ll probably change our model from partnering to a certain extent as well. And one last thought, I believe our health system will double down on population health and value-based care. I think that being a low-cost high-quality provider was advantageous before. I think in the future with government budgets really stressed and, as I’ve already mentioned, a weakened payer mix, finding ways to provide high quality high value is going to be key to success in the future. In the traditional ways of doing business in fee for service, I hope those days are quickly coming to an end and those that have tried to be low-cost providers will ultimately find more success in the future than they have in the recent past.

MG 16:25 Thank you, Dan. The next question is really the million-dollar question, which everybody is grappling with: the return to normal paradox. So when are the employees going to—if and when – are the employees going to return from their furlough, part-time, or layoff status, when the patients return because of social distancing challenges both in terms of receiving and delivering care? When will the government return to continue to assist the healthcare industry if at all? In this context, it’d be good to hear from you, Ranga, when do you see things returning to some new normal before we get back to where we were before the pandemic? And then in that context, where do you think the pandemic itself is headed in terms of infections, deaths, etc. both locally as well as nationally?

RK 17:23 We’re estimating two things. First, we don’t think COVID-19 is going away anytime soon. And second, we expect multiple surges small and large depending upon the local community. We actually have to have a health system that’s going to operate with COVID-19 for a period of time. Our estimate is that the disease itself will be around minimum two years. Even if you have a vaccine, we estimate 18 months to two and a half. And if you don’t get a vaccine, it’s going to be around in different forms for a long period of time. The second thing is the economic impact including what we are calling the fear effect is going to last a very long time. In our planning scenarios, we’re putting a three-to-five-year time frame of how we’ll have to change. So it’s not going to go back to business as before. Telehealth has got major implications of what it can and cannot do both on the revenue side and the cost side. And second, it also opens you up to a very different type of competition than before. Telehealth doesn’t have the same limits and especially if some of the licensure requirements are changed between states. And if you have more and more mid-level providers coming in and big players coming in, that landscape is going to be highly competitive. We see the same pattern happening in a variety of areas down in scenario planning. Some of it is based on what’s happened in Hong Kong and elsewhere, and some of it is based on what we think is going to happen here. I would actually say a lot of it—I’m using the word fast forward, two word. And the reason for it is many of these changes were underway on a small scale, but there were impediments before. Now, I think it’s going to move much faster. So value-based care, working from home, having employees work in a different way, outsourcing is going to be a big deal, and I think health systems are going to decide what areas to focus and what you don’t want to focus.

RK 19:24 But I don’t think you can be everything to everyone. It’s almost echoing what Dan is saying. So we expect some things would be the same. But a lot of things are going to be different, and I think there are many new players who are much more national level players taking an opportunity to come in. Just one comment on private groups: the primary care across the country is just being devastated. And that is going to have all kinds of implications, both positive and negative.

PO 19:52 So, Dan, you kind of touched on this in a previous answer. The government funding sources, there’s quite a few of them out there between the CARES Act, the Advance and Accelerated Medicare payments, the FEMA. There’s a few other smaller ones. Now, you access these. Have they been helpful? Do you think that the government as they’ve been rolling out specifically the CARES Act—have they done a good job? Are you concerned about down the road future audits from HHS or FEMA and so forth?

DD 20:25 Well, let me first say we’ve tried to access every program possible. As I mentioned, 25 million dollars a week adds up pretty quickly. As Ranga pointed out, there’s concern about resurgence of virus. We believe this will last a number of years. I think of funding sources really in two different ways. One is from a cash flow perspective, and the other is from a profit and loss perspective. So certainly, there are programs out there for accelerated payments that help with your cash flow. So, as an example, our health system got a $320 million advance payment from Medicare, which is terrific. It has to be paid back starting in August. Over a one-year period, they’re going to take it right out of our remittance advices, those payments that Medicare provides to us directly. So you’re deferring paying with something like that. Now, our health system has a reasonable amount of cash. So we didn’t necessarily need the $320 million. We’re concerned, but we just didn’t want to tap our investment. So we took advantage of it. We’re investing that money. We hope to make a few million dollars off it and pay it back in due course. But if you are a health system that is struggling and you need that money like so many did, paying that back starting in six months is going to be a real challenge. I mentioned in my previous response that we were going to look at our cost structure. I have to imagine that health systems across the country are going to have to look at that just to pay back these loans that they’ve received from federal government. We’ve done some of the other actions that I think most health systems have done. We’ve deferred accounts payable. We’ve deferred malpractice and pension contributions, payroll taxes, you name it. Slow down capital where and whenever possible. We’ve opened up a new line of credit but not passed it at this point. So from our perspective, we ended up generating between all those about $700 million of cash. And through the end of June, we think we’d have a $350 million problem so not a cash flow problem. But from a profit and loss perspective, there was the first wave of funds that was $50 billion.

DD 22:48 Our health system, as an example, got 60 million out of that 50 billion. $60 million. So if this goes to the end of June, and we’re out 350 million, that’s about a sixth of what ultimately we’ll need. So we filed an application with FEMA for release. A number of private organizations, state organizations, what we think our saving grace will be is there’s a $12 billion fund. It’s about $80,000 dollars per COVID admission is being provided to hospitals who’ve had 100 COVID admissions. That’s huge dollars. And for us, it was $180 million. So that will certainly help. You asked the question about strings attached and future audits. I have to imagine that when the federal government—when we get through this and they look at the size of the deficit and you think about the infrastructure of healthcare auditors, for lack of a better term, that are out there working for the federal government, that every one of these dollars will be audited. Maybe you’ll look back to 2008 with the TARP Relief Program, there wasn’t a lot of auditing in certain areas. But in regulated areas, there were. Obviously, healthcare is highly regulated. I think everything will be looked at really closely. So I’m going to take a little liberty here in what do I think the worst—what hospital would be in the worst position or healthcare system based on what happened? So number one, if you have a health system that has a weak cash position. Obviously, cash is king here. So that’s number one. Number two, if there is not much relief coming if you have a high Medicare population. Most of the relief dollars were based on total revenue. So you’re actually hurt if you have high Medicare population. If you lost elective procedures as nearly every hospital has and you have less than 100 COVID cases, those hospitals have to be on life support. In many ways, we would have been had we not had the influx of COVID patients although it came with massive operational, clinical, emotional challenges. It really has helped us financially and, certainly with this recent payment, dramatically.

MG 24:33 The big question right now is when are we going and how are we going to emerge from this over the next 90 days, 180 days? Hospital health systems are losing probably 200 billion through June. 161 billion of that is due to lost revenue from cancelled elective care including surgeries and additional elective care. 37 billion has been lost in taking care of COVID patients. The extra cost of PPE is about 2.4 billion and extra support to frontline workers in terms of screening, testing, transportation is about 2.2 billion. Clearly, the work is cut out for you, Ranga, and for you, Dan, over the immediate future. But talk to us a little bit on when and how are you going to emerge out of this or some semblance of your normal operations, if there is such a word. Ranga?

RK 25:32 This is going to be the difficult issue. But the way we are doing it is we’re dependent on when the state and the city in a given area is going to allow us to open. And when we decide to open, what we’re actually finding is a lot of patients are still wanting to wait if they don’t really need it immediately whereas the patients who do need it immediately we’re bringing them in pretty quickly. So for the first short term right after opening, we think there’ll be enough people coming in to come I wouldn’t say close to normal but pretty much moving up. But then when we look further out, we see the problem of people having lost insurance, people not working, their ability to pay, the shifted payer mix. Now, the biggest problem is also going to remain the workforce, trying to make sure that the workforce is retained, that private physician groups continue to work with us. Many of them have been badly hurt, and they would have to figure out how they want to do things going forward. So we see challenges. Time frame seems pretty short term. We are expecting continued ups and downs depending on state and citywide regulations. And we also have to decide in a system, do we need to prioritize certain locations for certain patients?

MG 26:49 Same question to you, Dan. How do you emerge out of this very ugly nightmare?

DD 26:54 I would answer word for word with what Ranga just relayed. We’re trying to decide the best way to approach the reopening. So we have six hospitals, and we’ve had a lot of internal discussions about whether we could make one hospital COVID-free, as an example, or maybe two of our hospitals COVID-free. Obviously, we couldn’t do that in the emergency department. We’ve had to transfer those patients rather and then admit them to the extent they needed to be. Or should we just have what we call clean sections of the hospital versus the COVID sections? Being that we have six hospitals, there are advantages and disadvantages doing both. We haven’t actually figured out which way to go yet. Our waiver application is going to be a hybrid, meaning we’re going to take two of our hospitals that have both clean units and COVID units, and that’s how we’re going to start business again. But we haven’t ruled out yet trying to form one or two COVID-free hospitals. Part of it depends on what our competitors do. And part of is we’re just not sure, to Ranga’s point, how fearful our patients will be. So we may have to be nimble in some of those decisions as we reopen our service.

TM 27:58 I have a quick question for each of you. Ranga, when we met earlier in the year when Mukesh and I came and called on you, I was particularly struck with the innovative nature of your vision, particularly how you were de-emphasizing what I would call kind of big facilities centralized healthcare and moving more to an education-based virtual. And while none of us relish the experience we’re going through, it strikes me that that, on a relative basis, is going to pay off for you. The reward for that innovation will be accelerated now with this new world. Does that resonate with you?

RK 28:31 Yeah. That’s exactly what we’re calling fast forward. It didn’t change our planning. We’re just accelerating it very fast. What’s interesting is how many other hospitals now want to join the type of system we’re trying to put out where we don’t want to own anymore hospitals or beds. We’re totally trying to go for where things are going to move in the next five years.

TM 28:55 Dan, you and I haven’t had a chance to meet, but I hear a lot about your system. One of the things that has struck me from listening to our team is the homogeneity across the system. There’s less infighting amongst the hospitals within your system. Has this strengthened that and brought the entire system closer together, or are each hospital starting to reassert their own culture more?

DD 29:18 I actually think that’s a really brilliant insight. It actually has brought them closer together. I think the walls between hospitals—despite trying to work together as a health system, there’s this competitive nature and we still have individual profit and loss statements and various metrics for each hospital. Certainly in this COVID environment, that was gone. Transferring patients without thought was all about patient care and not about how each hospital was doing financially or from a metrics perspective. Whether or not it will last, that remains to be seen. But certainly the last several months that has happened. And if I can just comment on your previous question, one of the things we see happening here is we had a vision of a more virtual care system as well. But some of the physicians weren’t on board. Well, now what we see is a sea change in positions because they know that in order to survive over the last several months they’ve all had to get on board. And some of them like it. Some of them not. But certainly there is more of an open mind to that than there was before.

PO 30:27 Ranga, Dan I know how busy you guys are right now trying to manage through this. I just want to thank both of you for your time today.

MW 30:28 [music] This ThinkSet podcast is brought to you by BRG. You can subscribe to the podcast and access other content from ThinkSet magazine by going to thinksetmag.com. Don’t forget to rate and review this show on iTunes as well. I’m Michael Whalen. Thanks for listening.

The views and opinions expressed in this podcast are those of the participants and do not necessarily reflect the opinions, position or policy of Berkeley Research Group or its other employees and affiliates.