Noblis Executives Recommend Reassessment During Recession
FALLS CHURCH, Va. — The healthcare industry will face trimmed-down operating budgets, changing consumer demands and consolidations, according to a recent economic forecast by a nonprofit science and technology organization.
The recession has caused hospitals to cut their budgets, spurring layoffs and hiring freezes, according to the report by Noblis, a nonprofit that aims to solve scientific, systemic and infrastructure problems for clients.
Limited credit and a drop in bond ratings have limited access to capital, the reports states. Declining margins have negatively affected investment income, philanthropy, interest payments, unemployment, cash flow, bad debt and charity care.
New construction will continue, but at a much slower pace, according to Noblis officials.
Small hospitals will be the most at-risk in the current economy, according to the report. Hospitals that previously relied on investment income, municipal funding of charity care and low-interest credit lines will have to make hard choices to avoid bankruptcies, program cancellations and closure.
“As providers begin to peek above the foxhole, so to speak, they are asking, ‘What do we do now?’” says William Hejna, Noblis senior principal.
Noblis is advocating a rapid and dramatic reassessment of master facility plans. The report, published in March, examines six areas typically addressed in a master plan for healthcare facilities: updating deteriorating or old infrastructure, new site demolitions or preparations, rightsizing of existing facilities, service capacity expansions, new on/off-campus ambulatory care sites and new all-single room inpatient units.
The report also outlines five initial steps for updating master plans, rapid assessment of baseline plans and assumptions, gap/risk analysis, and evaluating master plan projects against strategic criteria.
Hospitals need to determine if each area of the master plan is a quality or safety requirement, a mission essential investment, an improvement to productivity, and if it will lower costs and bring additional revenue, according to Noblis officials.
“The key to success with this framework is to ensure that you use a consistent set of strategic criteria to evaluate the benefit-to-cost relationship for every project element within the master facility plan,” according to the report.
Financing is a factor, along with safety, quality imperatives and mission-critical important criteria, according to the report.
“Our approach is a rapid recasting of capital spending in general,” Hejna says. “Come back through the whole of the plan and look at each element then set up criteria for evaluating potential benefits.”
If a hospital has a need to expand its emergency department, options besides construction should be explored, such as setting up an urgent care center, which would be less expensive and could carry the patient volume until plans for expansion can proceed, Hejna says.
“Providers need to explore new service lines that are profitable to improve operating performance now in order to create the capacity to re-enter the debt market in an advantageous position,” he says.
Although decisions about capital spending plans are often difficult, due to conflicting opinions and multiple options, Hejna says the economic crisis has fostered cooperation between stakeholders.
“It’s an encouraging sign when you get stakeholders around the table. People get it; they are all in the same situation and know credit is hard to come by,” he says.
Hospitals and healthcare providers are going to have to take a fast, hard look at their spending plans and make changes to provide maximum value in the shortest amount of time, Hejna says.