According to Modern Healthcare, hospital operating margins dropped by 18% between August and September 2021. We saw the same margin decline earlier in the pandemic: A disastrous combination of reduced volumes (because patients stay away from or delay especially the highly profitable elective surgeries) and higher costs (due to pandemic related activities). With COVID whipsawing between peaks and momentary recoveries from state to state – and vaccination numbers still embarrassingly low, there is not much reason to believe that we have seen this combination for the last time. One thing is certain: Hospitals have to find a way to sustain their elective surgeries. Certainly, banning these was a bad decision, but ensuring that patients feel comfortable about going to the hospital is a different challenge altogether.
The climate crisis: Hospitals are responsible for more than 8% of all US greenhouse gas emissions, and reducing emissions in hospital operations has been the focus for most of healthcare’s attempt to reduce environmental impact. This is turning out to be – far from – enough. Greenhouse gas emissions from the hospital are a great staring point, but they are so-called scope 1 emissions and fail to address what is happening in the supply chain (that’s scope 3 – emissions not directly controlled by the hospital). In fact, 80% of healthcare emissions come from medical devices, pharmaceuticals, food services, etc. This is far more difficult to address, but healthcare is not effectively responding to the call for greener solutions until it addresses it’s supply chain. 2022 is going to focus even stronger on this.
The pandemic showed us how fragile US hospitals are financially. Most simply cannot handle small demand fluctuations. Prices on, for example, medical devices, simply have to come down. Any other scenario is unsustainable. We are back to, “It’s the Prices, Stupid” – we just spend too much on healthcare in the US, and to fix that, prices have to come down. And all players in healthcare have to participate. Two notable players, who have largely avoided attention, although they need to be part of the solution: Payers and manufacturers. Manufacturers are foreseeing price increases even higher than usual due to their supply chain issues, so price reductions are not coming from that direction any time soon.
One of the perhaps biggest challenges to post-COVID US is neither costs nor the environment. It’s staffing. Burnout has plagued professions such as technologists, nurses, and even doctors since the height of the pandemic more than a year ago. Many have simply left their profession. Labor shortages are driving up costs significantly and making it harder for hospitals to serve their patients with qualified staff. Going back to the jigsaw of COVID – this will not get better any time soon – in fact, it will probably get worse. Add this to the lower volume-higher cost issue, and we have a recipe for disaster: Lower operating margin and less ability to deliver care.
The point is, we are in a “build-the-plane-while-we-fly-it” situation: We must repair US healthcare, and we must do it while we are not yet out of the pandemic – because its effects will continue to plague the sector for years, and there is no time to wait in addressing fundamental issues.